Volatile environment inhibits manufacturing growth

The pace of growth in the manufacturing sector eased in June reflecting slower growth in production, new orders, employment and supplier deliveries, however consumer-related sectors including food and beverage and clothing and footwear performed well.

The pace of growth in the manufacturing sector eased in June reflecting slower growth in production, new orders, employment and supplier deliveries, however consumer-related sectors including food and beverage and clothing and footwear performed well.

The seasonally-adjusted Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) dropped 3.4 points to 52.9 in June, which is still above the 50-point level indicating an expansion in activity.

Eight manufacturing sub-sectors grew in June, up from seven the previous month. Encouragingly, consumer-related sectors were among the best performers, including food and beverages, wood, wood products and furniture and textiles. Despite this consumer demand, clothing and footwear declined for the sixth consecutive month.

The lagged effects of the strength in the housing industry helped keep construction materials in the black.

“Manufacturing growth eased in June confirming the protracted nature of the current recovery. While the performance in recent months points to a positive June quarter both for the sector and the broader economy, there remains a considerable way to go before manufacturing returns to the levels of activity of mid-2008,” said Australian Industry Group chief executive, Heather Ridout.

“Of particular concern is that the new orders sub-index was treading water in June. New orders are a pointer to future directions for output and employment. The slower growth in the production and employment sub-indices during June reinforces this concern.

“The sector remains reliant on fiscal stimulus measures and, notwithstanding the better performance of some of the consumer-related sub-sectors, is vulnerable to further interest rate increases.”

PricewaterhouseCoopers Global Head of Industrial Manufacturing, Graeme Billings, said: “The volatile global environment, the cumulative impact of successive interest rate rises on the domestic economy and the ongoing withdrawal of fiscal stimulus, appears to be taking its toll on the manufacturing sector with a marked slowing in the pace of expansion in June.

“The relative strength in some consumer-related sectors during the month is likely to reflect the healthy growth in full-time employment over recent months.”