Australian Manufacturing expands for tenth consecutive month

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) eased by 2.4 points to 60.8 in July, remaining in strong expansionary territory but indicating a slower rate of growth from June’s record expansion (readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion).

Ai Group Chief Executive Innes Willox said, “While Covid-19 outbreaks and associated restrictions in some states undoubtedly dampened the upswing in activity and shook confidence, the manufacturing sector recorded another strong month of expansion in July. Production, employment, and sales of manufactured goods all grew at a faster pace than in June. Performance improved at record rates in the machinery & equipment, chemicals, and metal products sectors. Less positively, input prices escalated at a record rate and the pace of wages growth picked up on both trend and seasonally adjusted measures. These cost pressures were reflected in higher selling prices.

“The slower pace of the manufacturing upswing in July and the slower pace of growth in new orders suggest further easing in the months ahead. A significant headwind for the sector is that Sydney’s toughest restrictions relate to local government areas where there is a concentration of manufacturing sites and the manufacturing workforce. We expect the dampening impacts of these restrictions will flow along supply chains across the country with some offset from the easing of Victorian restrictions,” Willox said.

All six manufacturing sectors in the Australian PMI expanded in July, with machinery & equipment (up 0.2 points to 65.0), metal products (up 2.2 points to 62.3) and chemicals (up 1.0 point to 66.1) all reaching record highs.

All seven activity indices in the Australian PMI expanded in July, although three moderated slightly from the previous month. New orders remained in expansionary territory but fell from a record high in June (down 8.1 points to 62.5), while production expanded in most states and territories (up 1.1 points to 61.8) but was lower in NSW due to lockdowns. Some exporters noted difficulty finding empty shipping containers, with the exports index dropping 6.6 points to 53.6.

The input prices index increased to a record high in July (up 5.8 points to 84.6), eclipsing the previous record set in February 2008. Manufacturers’ selling prices rose for a sixth consecutive month to record the second-highest result for this index since the series began in 2007 (up 1.1 points to 64.7), suggesting that more manufacturers are passing on some of their higher input costs to customers.

The average wages index increased to its highest reading since 2008 (up 7.5 points to 69.1), with this large rise in July reflecting in part some reversal of wage freezes from last financial year. July also coincided with a 2.5% increase to the minimum wage which will filter through to award rates across the industry.