The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) eased by 0.8 points to 57.5 in May, indicating a 20th month of continuous growth, albeit at a slightly slower rate (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

May marked the longest run of expanding or stable conditions for the Australian PMI since 2005, with the longest positive run being 50 continuous months from July 2001 to July 2005. Five of the seven activity sub-indexes in the Australian PMI expanded in May. New orders edged up 0.8 points to 62.4, indicating healthy demand and a strong likelihood of further near-term growth, while sales levels were stable (down 12.1 points to 50.4).

Seven of the eight manufacturing sub-sectors expanded in May (based on trend data), with the wood & paper products sub-sector’s stable conditions the only exception (down 0.6 points to 49.4). Sub-sectors providing manufactured goods for large transport projects and the construction sector continue to report very strong levels of activity: petroleum, coal & chemicals (down 0.9 points to 64.2); metal products (down 0.2 points to 61.4); machinery & equipment (down 0.3 points to 59.9); and non-metallic minerals (up 0.1 points to 63.3).

“Australia’s manufacturers added a 20th month to the current run of industrial expansion in May on the back of lifts in production, exports, employment and new orders,” said Ai Group Chief Executive Innes Willox. “Growth was broad-based with only one sub-sector not recording a lift in performance. This exception was the wood and paper products sub-sector which saw a month of steady performance.

Some manufacturers reported raw materials shortages or delays in May and therefore drew down on their inventories (down 2.8 points to 47.0) to meet demand. The input prices sub-index jumped by 7.5 points to 70.0 in May, reflecting high energy input costs in a number of sub-sectors, while wages slowed slightly but remained elevated (down 1.9 points to 58.4). The selling prices sub-index dropped 2.4 points to 55.1, indicating more modest price increases for manufacturing customers in May.

“Most encouragingly, manufacturers recorded another month of strong employment growth with the employment sub-index remaining at the very healthy level of 56.1 points,” added Willox. “The recovery of manufacturing employment has been a feature of this period of expansion. As is the case in other parts of the economy, this employment growth has been facilitated by moderate wage outcomes. Businesses will be hoping the Fair Work Commission helps to extend this run of strong employment growth by handing down a sensible, modest increase in minimum wage rates to apply from 1 July.”