The latest Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) shows that the sector has expanded for three consecutive months for the first time since July 2010.

The Australian PMI increased by 0.4 points in September to 52.1 (readings above 50 indicate expansion in activity, the distance from 50 indicating the strength of the increase). Six of the seven activity sub-indexes expanded: new orders (up 0.5 points to 53.4); production (up 0.5 points to 51.7); manufacturing sales (up 4.6 points to 53.2); supplier deliveries (up 0.9 points to 53.9); employment (down 0.6 points to 50.7); and exports (up 4.6 points to 53.2). Manufacturers ran down their stock levels for an eighth consecutive month (broadly unchanged at 48.6).

The input prices sub-index eased 0.9 points but remained elevated at 66.9 as further depreciation in the dollar raised prices for imported inputs. The wages sub-index fell by 9.3 points to 55.0 as the annual wage increases for national minimum and award wage rates (effective July 1) have now passed.

“In encouraging news for an economy searching for sources of growth outside mining, September saw the manufacturing sector consolidate on gains generated in recent months,” said Ai Group Chief Executive, Innes Willox. “The lower Australian dollar is a clear driver with local producers winning against imports in the domestic market and making further progress in export markets. Last month the Australian dollar was about 10 per cent lower than the average for the first half of the calendar year and against the Trade Weighted Index, the domestic currency was around 7 per cent lower in September.

Four of the eight manufacturing sub-sectors expanded: food, beverages & tobacco (down 0.7 points to 53.5); wood & paper products (down 0.4 points to 69.6); textiles, clothing, footwear, furniture & other manufacturing (up 1.1 points to 56.3); and petroleum, coal, chemical & rubber products (up 8.9 points to 57.2). The machinery and equipment (up 1.5 points to 42.8), metal products (up 3.4 points to 46.7), and very small printing & recorded media (down 2.1 points to 47.4) sub-sectors all remained in contraction, as did the non-metallic mineral products sub-sector, despite improving towards stability (up 7.1 points to 49.0).

“The gains in the sector come despite continued weakness in two key manufacturing sub-sectors: metals, which is being buffeted by global demand/supply imbalances; and machinery and equipment, which despite areas of strong growth is battling the wind-down of automotive assembly and reduced orders from the mining sector,” Willox added.

The manufacturing selling prices sub-index was broadly stable at 47.9 as strong competition and downward pricing pressures continued, despite the growing pressure on margins from more expensive imported inputs.