Manufacturing activity ‘in the black’ but employment pressures remain

Manufacturing was in the black in August with activity expanding for the first time in fifteen months according to the seasonally adjusted Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) which rose by 7.2 points to 51.7.

Manufacturing was in the black in August with activity expanding for the first time in fifteen months according to the seasonally adjusted Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) which rose by 7.2 points to 51.7.

The key drivers of the solid rise in the Australian PMI and the return to modest growth were sharp increases in new orders, production, and deliveries, which rose above the 50 point level separating expansion from contraction.

The performance parallels the 18-month high reached by the Global PMI in July 2009, when it rose to 50.0.

Ai Group Chief Executive, Heather Ridout, said: “Manufacturing activity has been improving month by month with the pick-up being driven by a combination of improved demand and the rebuilding of inventories.

“Clearly the government stimulus measures have been effective, with respondents citing factors as underpinning these improvements as government infrastructure demand, investment incentives and cash payments.

“The increasing new orders and stabilising inventories give some hope that growth may be sustained over the coming months. However, conditions are uneven and pressures remain on employment, with the employment sub index falling for the 20th successive month.

“There is the risk, particularly if interest rates are raised too early in the recovery phase, that as the effect of stimulus measures wane the nascent recovery will fail to get traction,” Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said: “Signs that conditions facing manufacturers have begun to ease are welcome.

“Conditions remain tight however, and pressures on profitability will persist over coming quarters. Looking ahead the key issues of maintaining skills and integrating cost effective supply chains will regain their preeminence,” Billings said.

Key Findings for August:

* The seasonally adjusted Australian Industry Group-PricewaterhouseCoopers Australian PMI rose by 7.2 points

in August, to 51.7, its highest level since March 2008, 17 months ago.

* The clothing & footwear and paper, printing & publishing sectors recorded significant rises in activity in August,

while the textiles; chemicals, petroleum & coal products; and transport equipment sectors saw more modest

increases.

* The production sub-index rose by 10.2 points to 53.0, its highest level since December 2007.

* The new orders sub-index rose strongly by 12.4 points to 60.3, its highest level since July 2007.

* The employment sub-index fell, falling 0.8 points to 40.5. Consequently, the seasonally adjusted index fell for a 20th consecutive month.

* Average wages growth eased slightly in August, with the index registering a fall of 0.2 points to 54.4.

* Manufacturing inventories fell slightly faster in August, with the seasonally adjusted sub-index falling moderately by 1.4 points to 48.0.