Australian manufacturing showed some tentative signs of improvement in February with the rate of contraction across the sector easing in the month. 

The latest Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) lifted 5.4 points to 45.6 in February.

Readings below 50 indicate a contraction in activity.

Encouragingly, the new orders sub-index rose in February to 41.8 and the employment sub-index also improved, up 7.4 points at 47.5. 

However, the strong Australian dollar continues to impede exports with the sub-index remaining broadly unchanged at a low reading of 31.2.

"Although remaining under 50 points (indicating contraction), this was the best monthly result for the Australian PMI since last August and it was encouraging to see some easing in the severe pressures facing manufacturing, said AiGroup Chief Executive, Innes Willox.

Mr Willox said despite low official interest rates, conditions in manufacturing remain “very testing.”

Households have not yet “loosened the purse strings” and businesses are still delaying investment in machinery and equipment.

Mr Willox said flat government spending and the export challenges of high exchange rates are additional barriers to sales growth.

"With opportunities for revenue growth so constrained and with rises in wages and input costs – particularly for energy – businesses continue to cut costs and look across their business for efficiencies," Mr Willox said.