With the new year shifting into gear, Australian manufacturing is following suit, with increased expansion on the back of the construction industry.

The Australian Industry Group’s Performance of Manufacturing Index has increased by 3.5 points to 58.8 in February with the stronger pace of recovery delivering the index's highest monthly result since March 2018.

Six of the seven activity indices in the Australian PMI expanded in February 2021, with only the stocks (inventories) index contracting (down 5.6 points to 48.0), perhaps due to buoyant sales in the month (up 15.7 points to 62.2).

Production, sales, employment and new orders all improved from the December and January period, with the new orders index (up 5.3 points to 59.9) indicating further strong production in the coming months.

“Growth was distributed broadly across manufacturing with particular strength among producers of machinery & equipment and chemical products,” said Ai Group Chief Executive Innes Willox.

“Manufacturers are generally positive about the outlook for the next few months with new orders coming in at a greater pace as restrictions on activity and cross-border travel are hopefully wound back.

Five of the six manufacturing sectors in the Australian PMI expanded last month, with only the metal products sector reporting mildly negative conditions (down 0.8 points to 48.7).

The input prices index jumped above its long-run average (67.4 points) to record its highest result since October 2019 (up 9.7 points to 74.1), indicating faster input price increases, on average, for manufacturers. Selling prices, meanwhile, increased only slightly (up 0.4 points to 51.2).

“The building products sector saw a welcome return to growth on the back of strength in house building and renovations. The large food & beverage sector continued to expand while the metal products sector slipped lower in February,” Mr Willox said.

“Australia’s manufacturers lifted production and employment in February as sales recovered a large share of the ground lost in 2020.”

The average wages index also returned to more normal levels in February (up 1.8 points to 58.2) after dropping sharply due to COVID-19 in 2020.