Soft demand, strong dollar pushes manufacturing into negative in March

The Australian manufacturing sector moved into negative territory in March as the strong Australian dollar and softer demand continued to affect growth in the sector, Ai Group reports following PMI result for March.

The latest seasonally adjusted Australian PMI fell 1.8 points to 49.5 in March. Readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decrease.

Seven of the 12 sub-sectors recorded declines in activity – up from six the previous month – led by drops in the clothing and footwear, and wood products and furniture sub-sectors.

On a positive note, ongoing demand from mining projects resulted in another month of expansion for the transport equipment, and machinery and equipment sub-sectors.

"Manufacturing is clearly having trouble building momentum towards recovery,” said Ai Group chief executive designate, Innes Willox in a statement.

“The relentless pressure from the dollar, weak domestic demand and a flat commercial and residential construction sector continue to inhibit manufacturing performance.

“This month’s negative Australian PMI result comes after three months of tentative growth. The fragility of the sector highlights the importance of the Federal Budget in maintaining programs that build productivity.”

The employment sub-index increased 1.3 points to 51.3 in the March Australian PMI, largely due to employment increases in the transport equipment sub-sector.

According to PwC Partner – Economics and Policy, Jeremy Thorpe, the increased demand for transport is due to sustained growth in the mining sector.

 "This employment increase is yet another indication that mining continues to bolster the Australian economy. The enduring contraction in industries such as clothing and footwear demonstrates a need for Australian business to look at long term structural change," Thorpe said.