The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) increased by 1.2 points to 55.4 in December, finishing 2016 with a solid expansion (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Six of the seven sub-indexes in the Australian PMI improved from November, headed by a surge in exports (up 12.6 points to 68.5) and strong expansions in new orders (up 1.1 points to 60.6) and sales (up 5.3 points to 58.8). Employment slipped in December (down 4.9 points to 47.4), in line with recently weaker jobs growth.

Five of the eight manufacturing sub-sectors expanded in December (that is, above 50 points in three-month moving averages), with food and beverages (up 0.6 points to 57.1) and petroleum & chemical products (down 0.6 points to 56.5) continuing to perform solidly. Machinery & equipment (up 0.1 points to 55.0) is showing signs of continued resilience, while non-metallic mineral products bounced back to expansionary conditions (up 7.1 points to 57.9).

“Despite a small fall in sector-wide employment in December, manufacturing production, sales, exports, and new orders all grew strongly in the month, providing a running start to the new year,” said Ai Group Chief Executive Innes Willox. “Four of the five larger manufacturing sub-sectors – food & beverages; petroleum, coal, chemicals & rubber products; non-metallic mineral products; and machinery and equipment – saw healthy growth while the metal products sub-sector closed a difficult year in the red.”

Input prices remained elevated in December (up 0.3 points to 62.8) while the selling prices sub-index fell 6.1 points to a contractionary 45.4, indicating a continued tightening of margins for manufacturers heading into 2017. The wages sub-index of the Australian PMI increased significantly (up 8.5 points to 62.3), perhaps heralding an early 2017 pick-up in manufacturing wages growth.

“The positive result for producers of machinery & equipment comes despite the steading unwinding of automotive assembly and points to a tentative pick-up in business investment,” Willox added. “Early passage of the Government’s Enterprise Tax Plan would provide momentum and an important boost to activity.”