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Manufacturing growth remains subdued throughout April

08 May, 2006

Manufacturing activity remained subdued in April with production flat and employment remaining under pressure, according to The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI™), which eased 1.6 points to 50.3.

Australian Industry Group

Activity continues to be uneven across sectors, with half (six) of the sectors recording growth and the other half remaining weak. The strengths underpinning activity in the industry were the modest growth in new orders and stocks together with the against the trend pick-up in exports.

The strongest sectors were food and beverages and TCF, although the latter monthly readings will require a more consistent run of data to be convincing. Among the industrial-based sectors, only chemicals, petroleum & coal products reported growth in April. The largest falls were in fabricated metals and miscellaneous manufacturing.

Ai Group Chief Executive, Heather Ridout, said that while the strengthening in the consumer-related sectors was welcome, it was incipient and did not capture the effect, for example, of the latest spike in petrol prices on household disposable income.

"The implications of this Australian PMI™ result for interest rates, consistent as it is with an extended run of data, are obvious. For the RBA to impose an interest rate rise on industry in these circumstances can only be counterproductive, reinforcing the already intense cost and competitive pressures on the sector.

"The rise in petrol prices, the strong rebound in currency and the continued discipline of wages and prices evident in the core CPI, provide ample counter to any perceived risk of the re-emergence of inflation beyond the target zone," Ridout said.

PricewaterhouseCoopers Industrial Products Leader, Graeme Billings, said the recent improvement in activity was positive, but did not lessen the need for manufacturers to continue stripping out unnecessary costs and looking for ways to become more innovative.

"With market conditions likely to remain extremely competitive, manufacturers must continuously balance cost containment with investment in new growth opportunities, including skill development, market relationships, and new products and processes," Billings said.

Australian PMI™ Key Findings in April:

- The Australian PMI™ for April eased 1.6 points to 50.3.
- Modest growth in activity reflected modest rises in new orders, stocks and supplier deliveries.
- Export growth also strengthened.
- Production was unchanged and employment fell for the tenth consecutive month.
- Input cost increases moderated in the month, despite rising fuel costs.
- Six of twelve sectors reported growth in activity, up from four in March. Growth was strongest in clothing & footwear and textiles, and weakest in fabricated metals and miscellaneous manufacturing.
- Activity expanded in four states, with Victoria and South Australia reporting declines.
- Based on the latest National Accounts, the Australian PMI™ suggests growth in non-farm GDP of over 2.5%, and growth in manufacturing production of over 1.5%.

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