The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) improved by 1.6 points to 54.7 in September, indicating faster growth across the manufacturing sector (readings above 50 points indicate contraction in activity, with the distance from 50 indicating the strength of the increase).

Four of the seven activity indexes in the Australian PMI indicated accelerating and expanding conditions in September, while three indicated slowing but broadly stable conditions. Employment (up 6.2 points to 57.6) and new orders (up 3.8 points to 57.1) were strong, but production (down 3.4 points to 49.8), sales (down 4.8 points to 49.5) and exports (down 6.1 points to 49.6) all weakened to be roughly stable.

Four of the six manufacturing sectors expanded in September (according to trend data) with food & beverages (up 0.2 points to 59.2) still leading the way, followed by a resurgence in machinery & equipment (up 2.5 points to 56.7), which has benefited from increased demand from the mining and defence sectors.

“The strengthening of the manufacturing sector over recent months continued to build in September with a further rise in the Australian PMI,” said Ai Group Chief Executive Innes Willox. “Performance was most robust in the large food & beverage and machinery & equipment sectors and was supported by positive contributions from the chemicals and building products sectors. These areas of improvement were partly offset by further slippages in performance among metal product manufacturers and producers from the diverse textiles, clothing, footwear, paper & printing product groups.

The input prices index reported its highest reading of 2019 in September (up 5.7 points to 71.9), while the selling prices index fell back into contraction (down 3.8 points to 48.9). Some respondents reported increased import competition has restricted their ability to pass on input cost increases. The average wages index rose by a further 3.5 points to 63.8 in September – the highest reading since October 2018, indicating a higher proportion of businesses are facing wage increases across manufacturing.

“While sales and production were down in September, the lifts in employment and new orders are encouraging pointers for coming months,” Willox added. “Particularly as the favourable impacts of income tax cuts, interest rate falls and the lower Australian dollar continue to build.”