Manufacturing activity softened in November due to the strong Australian dollar, rising interest rates and skills shortages, according to the latest industry survey.
Only seven of the 12 manufacturing sub-sectors expanded in the month, the latest Australian Industry Group/PwC Australian Performance of Manufacturing Index (PMI) shows.
The PMI fell 1.8 points to 47.6 in November, driven by falls in the basic metals and machinery and equipment sub-sectors. Readings below 50 indicate contraction in activity.
The survey showed an expansion in areas such as textiles was not enough to offset falls in the other areas and new orders across manufacturing continued to weaken in the month.
Australian Industry group chief executive Heather Ridout said: "The continued softness in the Australian PMI underscores the difficult conditions confronting the industry.
“Clearly, factors including the sustained high dollar, higher interest rates and skill shortages, together with the caution around spending on the part of business and consumers, are dampening the outlook for the sector with implications for the broader economy.
"It is clear that the much talked about multi-speed economy is taking hold, posing major challenges for trade exposed sectors which in turn poses major challenges for government.
“The number one economic and social challenge now facing the Federal Government is to manage the unfolding minerals boom in a way that does not put at risk the objective of retaining a diversified and balanced economy."
PwC Global Head of Industrial Manufacturing, Graeme Billings, said: "The pressure on domestic manufacturers is intensifying and businesses are searching for further cost savings.
“This is putting an even-higher premium on value-enhancing business improvements and innovation. At the same time, the exploitation of opportunities for value enhancement are constrained by growing shortages of skilled labour."