The Australian manufacturing sector continued its recent recovery in April, with the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) climbing 1.7 points to 59.2.

This was the seventh consecutive month of expansion for the Australian PMI. While not a new record, the April result means that since February (when a PMI of 59.3 points was recorded) there have been the two highest PMI readings since May 2002 (62.0). All seven activity sub-indexes in the Australian PMI expanded in April, with new orders remaining elevated (down 1.1 points to 61.5) while sales (up 7.8 points to 65.5), supplier deliveries (up 9.4 points to 62.3) and exports (up 7.5 points to 58.6) surged higher. Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

“The strong showing by Australian manufacturing in April consolidates the recovery that has been underway in the industrial sector since August 2015 – notwithstanding a temporary setback in the September quarter of last year,” said Innes Willox, Ai Group Chief Executive. “The April performance featured strong growth in exports and local sales of food and beverages manufacturing, building materials, specialist machinery and equipment and specialist chemicals.

Seven of the eight manufacturing sub-sectors expanded in April (based on trend data), with six sub-sectors exceeding 60 points. The input prices sub-index increased a further 4.3 points in April to 69.8, with respondents again highlighting soaring energy prices as a key cost increase in recent months. The wages sub-index increased by 4.4 points to a relatively elevated 58.4.

Selling prices appear to be recovering, with the sub-index jumping 5.4 points to 58.9 – the highest result since September 2008. While manufacturers may be regaining some ability to pass on cost increases, this result may point to more inflationary conditions as opposed to improved margins.

“Resurgent output and prices in our agricultural and mining sectors are having a positive effect on demand for a range of locally produced manufactured equipment,” Willox added. “This surge is occurring despite the closure of the automotive assembly sector and recent disruptions in some locations due to Cyclone Debbie.

“The outlook is not smooth however. Sharp rises in energy costs – and especially gas costs – are threatening this growth. These increases in energy costs are proving difficult to pass on, threatening margins and the very viability of businesses in some manufacturing sectors. Recent announcements on energy policy are welcome steps towards the much-needed comprehensive energy and climate policy framework.”