The Australian manufacturing sector expanded for an eighth straight month in February. The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) rose by 2.0 points to 53.5 – its highest level since July 2010 (readings above 50 indicate expansion in activity, the distance from 50 indicating the strength of the increase).
Four of the eight manufacturing sub-sectors expanded (above 50 points in three-month moving averages), led by food, beverages & tobacco (up 5.0 points to 61.7), wood & paper products (down 7.2 points to 57.1) and petroleum, coal, chemical & rubber products (down 2.7 points to 56.4). Non-metallic mineral products rebounded from January’s contraction (up 5.7 points to 53.5).
“The manufacturing sector had a running start to 2016 with another month of expansion recorded for February,” said Ai Group Chief Executive, Innes Willox.
“Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015.”
Mr Willox there is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to the strong growth.
“With firmer expectations of the dollar remaining at or about its current level, confidence is building and businesses are readjusting their strategies, giving a higher priority to domestic activities both internally and along their supply chains,” he said.
"While the balance appears to be swinging to the positive, important challenges and fragilities remain and the sector is vulnerable to international volatility and adverse domestic policy changes.”
Important sub-sectors, including the metal products sub-sector, remain in contraction as well as the large machinery & equipment sub-sector despite the improving trends.
“Many businesses are being adversely impacted by the higher costs of imported inputs associated with the lower dollar,” said Mr Willox.
“Businesses are also finding that supply chains are taking time to rebuild after the ‘hollowing out’ that characterised the extended period of weakness for the sector in recent years.”
Mr Willox said the May federal budget is an opportunity to add momentum to the current recovery.