The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) fell 5.4 points to 52.0 in July, indicating continuing but slower growth across the manufacturing sector.

The Australian PMI has indicated positive conditions for 22 consecutive months, but the pace of growth has slowed from a record high (63.1 points) in March 2018 (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Of the seven activity sub-indexes in the Australian PMI, three expanded, three were stable and one contracted in July. The sales sub-index tends to be volatile around the end of the financial year and dropped 15.7 points to 45.5 – its lowest result since early 2016. The new orders sub-index fell 6.5 points to 51.1, suggesting modest activity growth for most parts of manufacturing in the months ahead. The input prices sub-index eased by 2.2 points but remained elevated at 68.1 in July, while wages lifted 1.8 points to 60.6 points. A sharp drop in manufacturing employment growth was also evident in July (down 7.8 points to 50.3 points).

“Infrastructure projects continue to support demand for manufacturing products, but rising energy costs and growing wage pressures are constraining activity,” said Ai Group Chief Executive Innes Willox. “Many respondents noted an increase in wage rates from 1 July – the date when the Fair Work Commission’s 3.5% minimum wage rise came into operation. Employment was stable in July after a year of growth, suggesting that employers may be wary of the increased costs of employment as the FWC decision reverberates through the labour market.”

Five of the eight manufacturing sub-sectors expanded in July (according to trend data), with expansions stronger in the larger sub-sectors of food & beverages (up 1.0 point to 60.3), petroleum, coal & chemical products (down 3.0 points to 56.9), non-metallic minerals (steady at 64.3) and machinery & equipment (down 1.1 points to 56.7).

“There were strong showings from the larger sub-sectors of food & beverages; petroleum, coal & chemical products; non-metallic mineral products; and machinery & equipment, while the smaller sub-sectors of wood & paper products and textiles, clothing & other manufacturing contracted in July.”