MANUFACTURING’S WINTER OF UNCERTAINTY ENDS ON BRIGHT NOTE

02-09-2019

Australian manufacturing continued to rally during August, with the Ai Group’s Performance of Manufacturing Index rising again by 1.8 points to reach 53.1. And the underlying data suggest that the recovery should not be short lived.

According to Ai Group Chief Executive Innes Willox: "Stronger production, sales, and employment combined in a small though encouraging lift in the Australian PMI for August. While it is only expanding at a modest pace, the further growth in manufacturing in August is heartening and, together with a rise in new orders, will help allay fears of a further slowdown in business conditions.”

The positive data included production (up 4.9 points to 53.2) and sales (up 11.6 points to 54.3) both returning to positive numbers. And with new orders rising to 53.3 and exports increasing to 55.7, the demand side of the equation is looking rather more positive than it did in July.

In terms of manufacturing sectors, the large food and beverage category still leads the way, with a slightly reduced figure of 55.8. However, the most encouraging performance came from the machinery and equipment sector, which returned to positive territory at 52.5 after several months of decline.

Input prices do continue to increase, albeit at a slightly slower rate with an index of 66.2. But this was offset by an increase in selling prices, with that index rising back into positive figures at 52.7.

Both these figures can, to some degree, be explained by the declining value of the Australian dollar. Many of the manufacturers surveyed reported increased costs of input materials due to the decline in the dollar, while others have seen increased demand from overseas for their end products.

One other change attributed to a delayed response came in the average wages index, which rose by 3.4 points to 60.3 in August. Ai Group commentators attribute the rise to this year's 3.0% minimum wage increase making its way through the system of industrial awards and agreements.

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