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Aust manufacturing activity grows but the dollar slows sales

04 July, 2007

Manufacturing activity continued to grow in June, although the rate of growth eased slightly, with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index® (Australian PMI®) falling 2.1 points to 53.1 (still above the key 50.0 level separating expansion from contraction).

The moderation in activity largely reflected a much smaller rise in new orders, while export growth also was flat.

Ai Group Chief Executive, Heather Ridout, said manufacturing activity was continuing to expand moderately, but sales growth already appeared to be feeling the effects of the strong exchange rate.

"Domestic conditions are clearly strong at present, with significant increases in State Government infrastructure spending, personal income tax cuts and the prospect of continuing strong employment growth likely to provide support in coming months.

"But the strong Australian dollar is a significant hurdle for exporters and will contribute to the increasing intensity of import competition.  Earlier gains in manufactured exports are now beginning to lose momentum.  This is disappointing, especially with the strong growth seen in global markets," Ridout said.

PricewaterhouseCoopers Global Leader of Industrial Manufacturing, Graeme Billings, said manufacturers would need to retain a tight focus on costs and lean manufacturing principles in the period ahead.

"It seems production growth may have been running a little ahead of sales recently and manufacturers need to ensure the accompanying rise in inventories is brought under control. Given the pressures on competitiveness from the strong Australian dollar, and with other sectors of the economy making growing demands on resources, cost containment will remain a crucial aspect of profitability in the shorter term," Billings said.

Australian PMI® Key Findings for June:

Manufacturing activity grew for the thirteenth consecutive month in June. 
The easing in activity largely reflected a sharp slowdown in orders growth, while exports were also flat. Production growth, however, slowed more moderately, underpinned by a jump in inventories. 

- Employment declined, while the rate of growth in supplier deliveries was unchanged (consistent with the relatively steady growth in production). 
- Input costs increased at a slightly faster rate.  
- Production expanded in all states other than Tasmania (compared with all six states reporting increases the previous month). Growth was again strongest in Western Australia. 
- Activity expanded in nine of 12 sectors in June, compared with all 12 in the previous month. 
- Growth in June was strongest in clothing & footwear, after reporting only a small increase in May. By contrast, growth slowed sharply in machinery & equipment, while the level of activity was flat in chemicals, petroleum & coal products.

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