Published 03-11-2020

Manufacturing Expands For The First Time Since July

03-11-2020

The Australian Industry Group Australian Performance of Manufacturing Index increased by 9.6 points to 56.3 in October, indicating expanding conditions for the first time since July, as other positive signs emerged across the economy.

PMI readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion.

The manufacturing sector grew solidly in October with production, employment, sales and exports all moving convincingly into growth territory. All seven indices in the PMI also showed expansion.

Once again, the large food & beverages sector led the way with strong contributions from machinery & equipment manufacturers. Food & beverage produced $26.5 billion in real value-added output in the year to Q2 2020, lifting two points on the index to 61.6.

Machinery & equipment produced $19.5 billion in real value-added output in the same period, rising 0.4 points to 53.9.

There also was firmer growth in the textiles, clothing, footwear, paper & printing group. The chemicals sector stabilised in October while the pace of contraction eased in both the metal products and building materials sectors.

Respondents across all sectors noted a jump in sales and new orders as a result of pent up demand from the initial activity restrictions. The jump into expansion was driven by large improvements in NSW, which rose into expansion, and Victoria, which remained in contraction but improved from a deep contraction in September.

Other figures released on Monday indicated a bounce back in hiring. There was a 9.4 per cent increase the ANZ job ads index in October, regaining more than three-quarters of the drop in March and April.

An additional 450,000 jobs have been added to the economy in the past four months despite the extensive lockdowns in Victoria, where the jobs are languishing.

Exports also are likely to be boosted by a further drop in Reserve Bank of Australia official interest rate to .0.1 per cent on Tuesday.

Ai Group chief executive Innes Willox was buoyed by the PMI figures.

"With the quantity of fiscal support easing in October and with the tax cuts only just starting to flow through, the lift in sales and the strong growth of new orders are particularly encouraging signs of improving household and business confidence,” he said.

“The solid national performance was achieved despite another month of contraction in Victoria. With restrictions in Victoria being lifted there are very good prospects of further strength in the closing months of 2020," Mr Willox said.

Australian PMI®: Key Findings for October

• All seven activity indices in the Australian PMI® were in expansion in October, with supplier deliveries (up 16.0 points to 58.8) and new orders (up 13.3 points to 58.4) experiencing large increases – possibly because some manufacturers anticipate higher production in the coming months as activity restrictions are eased. Sales also climbed significantly (up 14.9 points to 56.4) in October, while the employment index returned to positive territory (up 7.6 points to 55.3).

• Among the six manufacturing sectors in the Australian PMI® the food & beverages (up 2.0 points to 61.6) and machinery & equipment (up 0.4 points to 53.9) manufacturing sectors expanded, as did the smaller, diverse TCF, paper & printing sector (up 2.1 points to 53.7). Contraction was evident in the metal products (up 0.6 points to 47.4) and building materials (up 2.6 points to 46.1) sectors, while the chemicals sector was broadly stable (up 2.3 points to 50.9).

• The input price index increased to its highest result since April (up 8.7 points to 66.6), with some respondents noting difficulty transporting goods across state borders was increasing costs. Selling prices, on average, increased for the first time since April (up 4.3 points to 53.6).

• The average wages index improved into expansion (up 5.0 points to 57.3), recording its highest result since March.

Click here to download the full PMI report.

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