Australian PMI: Manufacturers close financial year on a high

The current run of expanding or stable conditions (21 months) for the Australian PMI is the longest since 2005, with the longest positive run being 50 continuous months from July 2001 to July 2005. Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

Seven of the eight manufacturing sub-sectors expanded in June (according to trend data), with the textiles, clothing, furniture & ‘other’ manufacturing sub-sector’s stable conditions the only exception (down 1.0 point to 49.3). Sub-sectors providing manufactured goods for civil engineering, residential and commercial construction projects continue to report very strong levels of activity: petroleum, coal & chemicals (down 0.9 points to 62.3); metal products (down 1.8 points to 56.2); machinery & equipment (down 0.3 points to 58.9); and non-metallic minerals (down 0.4 points to 63.4).

“Manufacturing production, employment, exports and sales were all higher in June, driving the Australian PMI to its longest run of expansion in well over a decade,” said Ai Group Chief Executive Innes Willox. “Growth was evident across the manufacturing sector including in the large food & beverages, metal products and machinery & equipment sub-sectors even though the drought conditions in some parts of the country are flowing along supply chains into these sub-sectors.”

Six of the seven activity sub-indexes in the Australian PMI expanded in June. The new orders sub-index defied an end-of-year reduction in new orders cited by some respondents to remain solidly positive (down 4.8 points to 57.6) while sales also grew strongly (up 10.8 points to 61.2). Employment remained buoyant (up 2.0 points to 58.1) and has been stable or expanding since December 2016. This builds on the manufacturing jobs growth shown by ABS employment data, with manufacturing employment in May at its highest level since August 2012 (trend).

The input prices sub-index increased by 0.3 points to 70.3 in June, reflecting continued high energy input costs in a number of sub-sectors, while wages lifted slightly by 0.4 points to 58.8. The selling prices sub-index rose 0.7 points to 55.8, indicating more modest price increases for manufacturing customers in June.

“With new orders continuing to come in at growing levels, the immediate outlook is for further growth in production and employment,” Willox added. “As to the longer term, manufacturers, particularly those in more energy intensive segments of the sector, remain concerned about ongoing uncertainty over energy policy and its dampening impact on the investment needed to ease price pressures.”