Australian PMI: Manufacturing growth at its strongest since 2010

The Australian PMI expanded for an eighth month in February, rising 2.0 points to 53.5 (readings above 50 indicate expansion in activity, the distance from 50 indicating the strength of the increase).

Of the seven activity sub-indexes (see table below), production (up 7.2 points to 60.1), new orders (down 0.4 points to 52.4) and exports (down 0.2 points to 53.7) remained strongly positive, while sales bounced back from January’s contraction (up 8.9 points to 53.0). The stocks sub-index remained in expansion after its spike in January (down 6.7 points to 52.5), while employment remained in negative territory (up 0.3 points to 47.4). The input prices sub-index was largely unchanged at 63.5 in February, while wages expansion slowed modestly (down 2.9 points to 56.4). Manufacturing selling prices slipped by 3.2 points to 48.3, ending two months of expansion. Coinciding with continued increases in input prices, this is indicative of tightening margins.

“The manufacturing sector had a running start to 2016 with another month of expansion recorded for February,” said Ai Group Chief Executive, Innes Willox. “Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015. There is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to this turnaround. With firmer expectations of the dollar remaining at or about its current level, confidence is building and businesses are readjusting their strategies, giving a higher priority to domestic activities both internally and along their supply chains.”

Four of the eight manufacturing sub-sectors expanded (that is, above 50 points in three-month moving averages), led by food, beverages & tobacco (up 5.0 points to 61.7); wood & paper products (down 7.2 points to 57.1); and petroleum, coal, chemical & rubber products (down 2.7 points to 56.4). Non-metallic mineral products rebounded from January’s contraction (up 5.7 points to 53.5). Textiles, clothing & furniture slipped into contraction (down 3.2 points to 46.9), while machinery & equipment moved very close to stabilising with its best result since June 2014 (up 1.7 points to 49.3).

“While the balance appears to be swinging to the positive, important challenges and fragilities remain and the sector is vulnerable to international volatility and adverse domestic policy changes,” Willox added. “Important sub-sectors, including the metal products sub-sector, remain in contraction as does the large machinery & equipment sub-sector despite improving trends in recent months. Many businesses are being adversely impacted by the higher costs of imported inputs associated with the lower dollar. Businesses are also finding that supply chains are taking time to rebuild after the ‘hollowing out’ that characterised the extended period of weakness for the sector in recent years. The upcoming federal budget is an opportunity to add momentum to the recovery that is underway.”