The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) fell 3.0 points to 51.0 in March marking a return to the flat conditions at the close of 2018 and in contrast to February’s stronger result.

The Australian PMI has been stable or positive (readings above 50 points indicate expansion in activity, with the distance from 50 indicating the strength of the increase) since August 2016 (31 consecutive months), but its trend has suggested slowing growth rates since its recent peak in March 2018. Four of the seven activity indexes indicated expansion or stable conditions in March, with all indexes lower this month compared to February except for finished stocks (up 1.6 points to 46.1). Production (down 5.1 points to 52.8) and employment (down 1.1 points to 56.6) remained in positive territory, while the new orders index was stable (down 2.0 points to 50.0).

There was a clear divergence among the six manufacturing sectors in March. Food & beverages (up 1.4 points to 59.0), chemicals (down 0.8 points to 51.3) and textiles, clothing, footwear, paper & printing (up 2.0 points to 57.7) expanded, while machinery & equipment (down 1.7 points to 46.1), metals (down 0.9 points to 46.4) and building materials, wood, furniture & other manufacturing (down 2.5 points to 44.7) contracted (trend).

“While gaining some ground, largely on the back of a lift in performance from the large food & beverage sub-sector, Australian manufacturing contributed to the slower pace of overall economic growth in March,” said Ai Group Chief Executive Innes Willox. “Metal product manufacturers, and businesses in the machinery & equipment and building products sub-sectors fell deeper into the red as drought and the slump in the construction sector continued to flow through supply chains.”

The input prices index dropped 5.9 points to 65.1 in March. It has decelerated since reaching a peak of 75.6 points in September 2018, and fell below its long-run average (67.7 points) for the first time in a year. The selling prices index rose by 1.4 points to 53.0, indicating that prices for some manufactured goods are continuing to rise following the price falls of December 2018.

“Domestic sales were sharply lower and the pace of production growth eased while employment and, to a lesser extent export sales, recorded another month of gains,” Willox added. “Survey respondents attributed part of the fall in sales to wariness about the outcome of the upcoming federal election. With new orders flat, manufacturers will be looking to tomorrow’s Budget for a boost in business and consumer confidence.”

The average wages index rose by 1.7 points to 61.2 in March. After rising steadily throughout 2017 and 2018, the wages index has been trending lower since its recent peak in September 2018, indicating that fewer manufacturing businesses are now implementing wage rises, relative to the recent peak in Q3 of 2018.