The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) edged 0.1 points higher to 61.8 in May, indicating an eighth consecutive month of recovery following the severe disruptions of COVID-19 in the second quarter of 2020.
The May result represents the index’s highest monthly result since March 2018 and the fourth highest since the Australian PMI commenced in 1992 (readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion). All six manufacturing sectors in the Australian PMI expanded in May and at a faster pace than in April.
The strongest results were in the sectors that directly supply the construction sector, including building materials (up 3.8 points to 66.4), machinery & equipment (up 0.2 points to 64.7) and chemicals (up 2.1 points to 65.7). Six of the seven activity indices in the Australian PMI expanded, with only the exports index indicating a contraction (down 9.9 points to 48.9). Production (up 0.9 points to 64.5), employment (up 3.3 points to 61.3) and new orders (up 1.5 points to 64.9) accelerated into very strong expansion.
“Australia’s manufacturing sector maintained its rapid pace of expansion in May fuelled by strong demand from the construction sector, a pick-up in business investment and healthy demand from households,” commented Ai Group Chief Executive Innes Willox. “Each of the six diverse manufacturing groups expanded at a more rapid rate in the month led by the machinery & equipment, building products, and chemicals sectors. Manufacturing production and employment accelerated and, while the pace of expansion eased from April’s record high, sales also continued to rise.”
The input prices index rose further in May (up 8.0 points to 82.1), reaching its highest level since June 2008. Input prices for manufacturers are surging for various raw materials, due to high global commodity prices for metals, oil and other key inputs. Manufacturers’ selling prices increased again in May (up 5.4 points to 58.3), suggesting that more manufacturers are passing on some of these higher input costs to their customers. The average wages index rose again in May (up 1.1 points to 62.9), while the capacity utilisation index maintained April’s record high (unchanged at 85.1%).
“Manufacturers experienced further pressure on input costs and with wages also rising more rapidly, they are seeking to recover some of these extra costs from customers,” Willox added. “With capacity utilisation running at high levels and new orders continuing to grow, manufacturers are finding it increasingly difficult to fill positions. While the new Victorian lockdown will dampen enthusiasm somewhat, these conditions are likely to be setting the stage for a lift in investment by manufacturers.”