June shows largest manufacturing expansion since February

Local manufacturing performance grew during June for the first time since February, due to pleasing performance in the textiles, construction materials, basic metals and chemicals, petroleum and coal sectors.

New orders and production expanded during June, lifting the Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI) 5.2 points to 52.9, which is above the 50-point level separating expansion from contraction.

Though the strong Australian dollar continues to hurt manufacturers, the positive June PMI result is proof that local companies are still bucking the odds and performing well against obstacles.

The main findings during June were:

•       The Australian PMI expanded in June for the first time since February.

•         Construction materials and basic metals were among the six sub-sectors which expanded in the month, up from three in May.

•         The new orders sub-index grew 6.0 points to 54.6 driven by strong activity in construction materials and basic metals.

•         The production sub-index also expanded (54.7).

•         The strong dollar continues to have a negative impact on manufacturing with exports continuing to contract in June (45.9).

•         Queensland, Victoria and Tasmania recorded manufacturing growth in June.

"The positive result, particularly the lift in new orders, is good news for a sector that has been weak for some 12 months,” said Ai Group chief executive, Heather Ridout.

“It will contribute to some extent in recovering lost ground after an extended run of contractions. The sector confronts some formidable headwinds in the form of the high dollar, rising energy costs and constraining interest rates and these are unlikely to abate any time soon.”

Among these ‘formidable headwinds’ is the looking carbon tax, which is expected to affect trade-exposed businesses like manufacturing more than others.

"These circumstances point to the severe risks for the sector of imposing a price on carbon and the need for very strong measures for trade-exposed businesses and a starting price that gives industry room to adjust," said Ridout.

According to PwC Global Head of Industrial Manufacturing, Graeme Billings, the lift in manufacturing performance in June points to the resilience of manufacturers in the face of adversity.  

“The efforts of manufacturers has seen the Australian PMI clawing its way out of negative territory over the past few months. There should, however, be no doubt about how tough conditions are and how important it is for manufacturers to continue to search for ways to lift business performance and seek new avenues of advantage," he said.

Interestingly, the textiles sector was among the highest-performing sectors during June, assumedly due to the government’s $35 million injection in the textiles, clothing and footwear sector announced April.

Did your business notice a rise in activity during June? Tell us your story below.