The Australian Industry Group’s Australian Performance of Manufacturing Index (Australian PMI) rose 1.9 points to 51.3 in July, climbing back into expansion after falling into contraction in June for the first time in almost three years.

Four of the seven activity indexes in the Australian PMI expanded in July (readings below 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the decrease). Despite falls in sales (down 8.1 points to 42.7) and production (down 3.6 points to 48.3), a return to positive territory for supplier deliveries (up 4.8 points to 51.9) and a stronger new orders index (up 3.2 points to 53.0) suggest manufacturers are gearing up for more production in coming months. The exports index improved again in July (up 1.5 points to 54.6), with strong overseas demand for Australian consumable manufacturing products such as food, beverages, pharmaceuticals, vitamins and cosmetics.

Three of the six manufacturing sectors expanded in July (according to trend data), with the gap between the expanding and contracting sectors growing in recent months. Food & beverages (down 0.7 points to 59.2) and building materials, wood & furniture (up 1.3 points to 63.7) led the way, while heavy industrial sectors including metals (down 2.9 points to 35.4) and machinery & equipment (up 1.0 points to 48.8) continued to report weak conditions.

“Australian manufacturing edged back into growth in July as continued expansion of the food & beverages, chemicals, and building-related products sectors outweighed ongoing deterioration in activity in the metal products and textile, clothing, footwear, paper & printing sectors,” said Ai Group Chief Executive Innes Willox. “Machinery & equipment manufacturers moved closer to stabilisation boosted by infrastructure-related sales. While production fell, export sales were stronger partly due to the downward drift in exchange rates over the first half of 2019 and partly due to strong overseas demand for food, beverages, pharmaceutical and cosmetic products.”

The input prices index eased again in July (down 1.1 points to 66.3), but there was also a gentle fall in selling prices (down 0.4 points to 49.2). The average wages index fell by 2.8 points to 56.9 in July, indicating a slower rate of wage increases across the manufacturing sector despite the 1 July 3.0% minimum wage rise.

“Pressures on manufacturers’ margins continued in July in the face of weak domestic sales and selling prices even though the pace of increases in wages and other input costs eased,” Willox added. “In encouraging pointers for the months ahead, both new orders and employment expanded in July.”