Australian manufacturing continues to grow, according to the Ai Group’s latest Performance of Manufacturing Index, but the figures show some worrying signs. The Australian PMI for November 2018 remained in positive territory at 51.3, but at a full seven points below the previous month, this is the lowest figure for 13 months. Nonetheless, November does mark the 26th consecutive month of growth.
Of greatest concern in the underlying data is the new orders index, which has fallen into contraction for the first time since September 2016. And while this index has always been one of the most volatile, its trend has been downwards throughout 2018.
Nevertheless, the manufacturing sales index remained in positive territory at 52.6 points in November.
The effects of the continuing drought in New South Wales and Queensland are beginning to impact the manufacturing sector, particularly in the large food and beverages sector. As a result, during November, manufacturing conditions were stronger across the board in Victoria and South Australia but fell into contraction in New South Wales and Queensland.
That same food and beverages sector remains buoyant with an index of 57.9 points in November, reflecting strong export demand from Asia for high-quality products, together with higher production in the lead up to Christmas.
However, some manufacturers reported higher prices for raw agricultural inputs and some quality issues due to the drought.
In announcing the results, Ai Group Chief Executive Innes Willox urged caution: "While it is too early to say that winter is coming for the sector, there are clouds on the horizon with new orders falling into contraction,” he said.
“Drought conditions in New South Wales and Queensland are now having an adverse impact on input costs and sales for some manufacturers and uncertainty over the direction of energy prices and policy is weighing heavily on the more energy-intensive parts of the sector," he concluded.