Supply chain and labour issues constrain Australian manufacturing expansion

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) increased a further 2.5 points to 55.7 in March – the highest monthly result since July 2021 (readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion.

Innes Willox, chief executive of Ai Group the national employer association said, “The Australian manufacturing sector grew faster in March as manufacturers added new staff, lifted sales and continued to expand production (although at a slower pace than in February). Five of the six manufacturing sectors saw improved performance with businesses in machinery & equipment, building products and the diverse textiles, clothing, footwear, paper & printing group leading the way. The food & beverages sector, which is the largest area of Australian manufacturing was alone in seeing conditions deteriorate in March. Across manufacturing pressures from wages and input prices stepped up while selling prices growth saw manufacturers recover some cost increases in the market. There was an encouraging rise in new orders in March although with labour and input supply constraints growing, manufacturers will be stretched to fill orders in a timely way,” Mr Willox said.

Six of the seven activity indices in the Australian PMI expanded in March with supplier deliveries the only index in contraction (down 3.3 points to 45.7). Production (down 1.2 points to 53.4) and inventories (down 2.4 points to 53.5) eased back slightly from more expansionary levels in February, while employment (up 9.9 points to 53.4), exports (up 15.7 points to 58.3) and sales (up 12.5 points to 63.9) all increased in March. An increase in the new orders index (up 5.2 points to 65.0) indicated further strong production can be expected in the coming months.

Five of the six manufacturing sectors in the Australian PMI reported positive trading conditions during March, with buoyant conditions reported by manufacturers in machinery & equipment (up 3.3 points to 60.2), building materials (up 12.6 points to 61.0), and TCF, paper & printing products (up 6.7 points to 59.0). The large food & beverage sector remained in contraction (down 0.5 points to 46.9).

The input prices index rose further in March (up 6.8 points to 82.4), indicating faster input price increases on average for manufacturers. Selling prices edged higher to record the index’s highest reading since 2008 (up 0.4 points to 72.0).

The average wages index increased in March (up 1.7 points to 66.6) reaching its highest level since the recent peak in 2021.