The outlook for Australian manufacturers is brightening

Activity levels across Australia’s manufacturing sector continued to expand in December with the latest Ai Group manufacturing PMI reading coming in at 51.9.

Although down 0.6 points on the 52.5 level of November, the reading marked the sixth consecutive month that the index held above the 50 level separating growth from contraction, making it the longest period of expansion since July 2010.

Over the month, five of the survey’s seven activity subindices recorded expansions, with strength concentrated primarily in new order and exports. The table below, supplied by the Ai Group, reveals the internal movements of the PMI report in December.

As a lead indicator for activity levels in the months ahead, the new orders gauge was particularly pleasing, rising 2.1 points to 55.3. In combination with the exports gauge which remained in expansionary territory at 54.9, there are signs that the lower Australian dollar is now providing a positive tailwind for manufacturers exporting overseas.

Of the two gauges that contracted during the month – stocks and deliveries – the Ai Group note that a drive from firms to reduce stock-related holding costs over the summer break may have contributed to the weakness, albeit temporarily.

From an industry-specific standpoint, five of eight subsectors recorded an expansion in activity levels from a month earlier, suggesting that while overall activity levels continue to expand, the improvement is not uniform in nature.

Despite pockets of weakness, Ai Group CEO Innes Willox believes the continued expansion provides a very good base from which manufacturers can launch a prosperous 2016.

“The further expansion of Australian manufacturing in December capped a strong second half of 2015,” said Willox.

“After the extended weakness the sector has experienced over the past five years, this is a most welcome turnaround. With export growth solid and production, sales and new orders all on the rise, there is now a very good base from which manufacturers can launch a prosperous 2016.

“That said, declines in automotive assembly, the ongoing contraction of mining investment and tough conditions in global metals markets continue to constrain the growth of the sector and its role in rebalancing the Australian economy.”

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.