Manufacturing subdued in October

The manufacturing sector was ‘subdued’ in October, although the pace of decline slowed compared to the previous month, according to the latest Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI).

The manufacturing sector was ‘subdued’ in October, although the pace of decline slowed compared to the previous month, according to the latest Australian Industry Group – PwC Australian Performance of Manufacturing Index (Australian PMI).

The index rose 2.1 points to 49.4, which is just the critical 50-point level separating expansion from contraction.

According to the report, manufacturers cited the strong Australian dollar and sluggish domestic demand as having an impact on growth, which is a similar response to conditions in September.

Though seven out of twelve subsectors expanded in the month, including clothing and footwear, and machinery and equipment, this was not enough to offset the steep decline in the textiles sub-sector, which was largely related to weak consumer confidence and a shortage of skilled labour.

Food and beverages, and wood products and furniture also remained ‘in the red’, according to the report.

However, across manufacturing in general, production levels and employment rose in October, which is a good sign for the industry. In fact, manufacturing grew in all states except South Australia and New South Wales.

“Manufacturers continue to be inhibited by strong overseas competition amid the strengthening Australian dollar, soft domestic demand and an intensification of skill shortages. While not confined to the west, skill shortages are particularly acute among Western Australian manufacturers. The industry also remains wary of the impact of interest rate rises at a time when strong competitive pressures are ensuring that inflationary pressures remain moderate,” said Australian Industry Group chief executive, Heather Ridout.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said the manufacturing sector continues to be weighed down by intense overseas competition, and this will be exacerbated by the strong Australian dollar.

“These circumstances present substantial challenges for manufacturers who must continue to search for business efficiencies and innovation opportunities,” he said.

“There are, however, reasons to be cautiously optimistic about the near term prospects of the sector. Production in the clothing & footwear; construction materials; and machinery & equipment sub-sectors rose strongly in October despite the overall fall in new orders, suggesting that businesses expect a pick-up in demand over the coming months.”

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