Manufacturing activity picks up in August, but still mixed

04 September, 2006

Australia's manufacturing sector grew moderately in August, underpinned by a lift in domestic demand and exports.

Nevertheless, the overall performance was mixed, with input cost pressures continuing to be a burden on the sector, driving a continued focus on cost reductions.

The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI®) rose 2.4 points in the month to 52.1 (marginally above the 50.0 level that separates expansion from contraction). Seven of twelve sectors reported expansions in activity in August, up from just four in July. Growth was strongest in chemicals, petroleum & coal products and resumed, after falls the previous month, in clothing & footwear; paper, printing & publishing; fabricated metal products; and miscellaneous manufacturing.

Meanwhile, construction material products reported the sharpest contraction in activity and the rate of decline accelerated in the textiles sector.

The moderate growth in August has been underpinned by a broadening in domestic demand across both states and sectors, along with a lift in exports.

Ai Group Chief Executive, Heather Ridout, said, however, that despite the pick-up in exports and domestic demand, overall conditions remain mixed and choppy and this has not been helped by a jump in raw material costs and the increase in official interest rates.

"The improvement in trend growth in recent months is encouraging, however the strong headwinds the industry faces from continuing uncertainty over interest rates, subdued activity in the housing sector, high energy prices and a high exchange rate suggest that it may be difficult for growth to develop stronger momentum over coming months," Ridout said.

PricewaterhouseCoopers Industrial Products Leader, Graeme Billings, said in the past year a wide range of Australian manufacturers had been focussing on strategies to strip out excessive costs, to lift skills and innovation, and to work more closely with customers and suppliers.

"These strategies appear to be delivering clear benefits, but this must remain an ongoing process and should not be allowed to flounder with signs of improving demand growth," Billings said.

Australian PMI® Key Findings in August:

- The Australian PMI® rose 2.4 points to 52.1.
- Production growth strengthened slightly in the month, driven by the combination of a rise in new orders, stronger export growth, and the second consecutive small fall in inventories.
- Growth in supplier deliveries accelerated, while the rate of labour shedding eased.
- Raw material costs jumped sharply, following two months of moderate increases.
- Activity expanded in seven of twelve sectors, up from four in July.
- Growth was reported in NSW, Queensland, South Australia and Tasmania, while activity was broadly unchanged in Western Australia. Activity fell for the second consecutive month in Victoria.