Manufacturing activity remains subdued

MANUFACTURING activity remained subdued in February with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) rising 2.2 points to 51.4 (above the key 50.0 level separating expansion from contraction) following a drop of 8.4 points in January.

MANUFACTURING activity remained subdued in February with the Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) rising 2.2 points to 51.4 (above the key 50.0 level separating expansion from contraction) following a drop of 8.4 points in January.

Ai Group Chief Executive, Heather Ridout, said the manufacturing sector has seen more subdued activity over recent months. “In part, this has reflected the effects of shutdowns over the summer holiday period.

“However, it is clear that concerns over global economic prospects, especially in the United States, higher Australian interest rates and rising input costs have had an ongoing negative impact on the sector.

“The persistently high Australian dollar has also undermined any potential offsetting boost for manufactured exports at a time when demand for global manufactures is strong.

“The dollar of course is also contributing to lifting the intensity of import competition from already high levels. While inflationary pressures have clearly built over recent months, economic policy needs to take account of recent overall tightening of monetary conditions and its lagged impact on the economy,” Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said the PMI result illustrates the increasing cost pressures facing manufacturers, the associated squeeze on margins and the continued impact these challenges have.

“Cost pressures are unlikely to abate soon and this re-emphasises the task facing business in driving operational efficiencies and increasing overall productivity,” Billings said.

Key findings for February:

• The Australian PMI rose 2.2 points to 51.4 in February following a weak January that was marked by seasonal shutdowns, global instability and input cost and interest rate concerns.

• Production and employment eased slightly.

• The slight improvement in activity in February reflected a lift in new orders and input deliveries while stocks also grew, though at a slower rate than in January.

• Input cost price growth accelerated in February, while selling prices rose more slowly than in recent months, indicating some margin squeeze.

• February saw growth in wages and capacity utilisation (unadjusted) rise.

• Manufacturers cited positive effects on activity from strong demand, particularly from the mining sector and infrastructure spending. On the negative side were: import competition, lack of skilled labour, the rising cost of raw materials, the high Australian dollar, and Chinese competition.

• Seasonal factors in regard to factory shutdowns over the holiday break continued to constrain production for some firms.

• Activity grew in all states except South Australia and Tasmania.

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