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Manufacturing contraction eases in February: Australian PMI

05 March, 2014

Improvements in production levels and new orders contributed to an easing in the rate of contraction in the latest Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI).

The seasonally adjusted index firmed by 1.9 points to 48.6 (readings below 50 indicate a contraction in activity).

Despite some encouraging signs with production up (51.5) and new orders steady (50), manufacturing employment (47.4), stocks (45.5) and supplier deliveries 44.9) remained in negative territory.  Export markets remain particularly tough for manufacturers with the sub-index falling below 30 points.  A recent pickup in residential and commercial construction continues to support the non-metallic mineral products sub-sector which rose 7.3 points to 64.8. 

Australian Industry Group chief executive, Innes Willox said: "While an easing in the pace of contraction and the lift in production in February are welcome, overall conditions in manufacturing continue to reflect the intense pressures from the strong dollar, high energy costs and the legacy of a long period of low productivity growth.  Manufacturers' margins remain under considerable pressure and export sales are very weak. Yet it is critical that manufacturing builds competitiveness and productivity if the economy is to find new sources of growth as the boom in mining investment wanes.

"Major efforts are now needed both by businesses and governments to lift the pace of innovation, to build business capabilities and to lift workforce skills in manufacturing and in other trade exposed sections of the economy.  It is critical that we rebuild and recapitalise the sector and position it to take advantage of new opportunities and to assist in the task of rebalancing the economy which has become over-exposed to the fortunes of the mining sector," Willox said.

Key findings for February

  • The latest Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) was 48.6 points in February – an improvement of 1.9 points on the previous month (readings below 50 indicate a contraction in activity)
  • The production sub-index recorded 51.5 points (expansion) and the new orders sub-index improved by 1.2 points to 50.0 points (stable)
  • The exports sub-index dropped below 30 points again, to just 25.8 points in February
  • Four sub-sectors expanded in February including food, beverages and tobacco (57.1 points, three month moving average), which has now expanded in every month since March 2013
  • The selling price index rose 3.8 points to 50.6 points (stable) in February.
  • The input price index rose 5.3 points to75.1 points, as the lower dollar pushed up the Australian price of imported inputs
  • The average wages index increased by 0.5 points to 57.4 points

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