Manufacturing grows for 20th successive month

Australian PMI Trend
Source: Ai Group

Australian PMI Trend Source: Ai Group

Australia’s manufacturing sector recorded 20th month of expansion in May, with the Australian Industry Group’s Australian Performance of Manufacturing Index (Australian PMI) easing by 0.8 points to 57.5, albeit at a slightly slower rate compared to the previous month.

This marks the longest run of expanding or stable conditions for the Australian PMI since 2005, with the longest positive run being 50 continuous months from July 2001 to July 2005.

Five of the seven activity sub-indexes in the Australian PMI expanded in May. New orders edged up 0.8 points to 62.4, indicating healthy demand and a strong likelihood of further near-term growth, while sales levels were stable (down 12.1 points to 50.4).

Some manufacturers reported raw materials shortages or delays in May and therefore drew down on their inventories (down 2.8 points to 47.0) to meet demand.

Seven of the eight manufacturing sub-sectors expanded in May, with the wood and paper products sub-sector’s stable conditions the only exception (down 0.6 points to 49.4).

Sub-sectors providing manufactured goods for large transport projects and the construction sector continue to report very strong levels of activity: petroleum, coal and chemicals (down 0.9 points to 64.2); metal products (down 0.2 points to 61.4); machinery and equipment (down 0.3 points to 59.9); and non-metallic minerals (up 0.1 points to 63.3).

The input prices sub-index jumped by 7.5 points to 70.0 in May, reflecting high energy input costs in a number of sub-sectors, while wages slowed slightly but remained elevated (down 1.9 points to 58.4). The selling prices sub-index dropped 2.4 points to 55.1, indicating more modest price increases for manufacturing customers in May.

“Most encouragingly, manufacturers recorded another month of strong employment growth with the employment sub-index remaining at the very healthy level of 56.1 points,” Ai Group Chief Executive Innes Willox said.

“The recovery of manufacturing employment has been a feature of this period of expansion. As is the case in other parts of the economy, this employment growth has been facilitated by moderate wage outcomes. Businesses will be hoping the Fair Work Commission helps to extend this run of strong employment growth by handing down a sensible, modest increase in minimum wage rates to apply from 1 July,” Willox said.