The manufacturing sector recorded another positive result in February with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) rising 2.8 points to 53.8.
Manufacturing growth was fuelled by a lift in new orders, which flowed on to stronger production and input deliveries for the month.
Manufacturers point to the high exchange rate and weak retail sales as limiting growth.
The employment index lifted slightly (2.6 points) but employment prospects remain relatively lacklustre.
Selling prices rose for the first time in five months while input costs also increased. Companies linked to the housing and resources sector grew solidly for a second consecutive month in February.
Growth was strongest in the paper, printing and publishing and textile sectors.
Australian Industry Group chief executive, Heather Ridout, said: "February's Australian PMI represents an encouraging outcome for the manufacturing sector.
“While there is a lot of ground lost over the past two years still to be recovered, overall, conditions do appear to be improving.
"The combination of rising new orders and production augers well for the industry in coming months. However, employment remained lacklustre reflecting the still patchy nature of growth with continuing weak results in some five out of twelve manufacturing sectors.
“Those sectors exposed to the construction and resources sectors are showing signs of stronger activity while consumer related sectors have weakened.
“The impact of the strong Australian dollar and higher interest rates are posing formidable headwinds to growth while high interest rates are also dampening demand."
PricewaterhouseCoopers Global Head of Industrial Manufacturing, Graeme Billings, said: "Signs of improving markets for manufacturers' products are a positive sign for a sector whose margins remain under significant pressure.
“This pressure was again illustrated by the fourth consecutive rise in input cost growth. The enduring message for manufacturers under strong competitive pressure from imports and the higher Australian dollar is to focus on constraining costs growth through operational innovation, increased efficiency and boosting integration into global supply chains."