Ai Group Chief Executive Innes Willox said: "Infrastructure projects continue to support demand for manufacturing products, but rising energy costs and growing wage pressures are constraining activity. Many respondents noted an increase in wage rates from 1 July – the date when the Fair Work Commission’s 3.5% minimum wage rise came into operation. Employment was stable in July after a year of growth suggesting that employers may be wary of the increased costs of employment as the FWC decision reverberates through the labour market. There were strong showings from the larger sub-sectors of food & beverages; petroleum, coal & chemical products; non-metallic mineral products; and machinery & equipment, while the smaller sub-sectors of wood & paper products and textiles, clothing & other manufacturing contracted in July," Willox said.
Australian PMI: Key findings for July
- The Australian PMI® has indicated positive conditions for 22 consecutive months, but the pace of growth has slowed from a record high (63.1 points) in March 2018
- Of the seven activity sub-indexes in the Australian PMI®, three expanded, three were stable and one contracted in July (see table below). The sales sub-index tends to be volatile around the end of the financial year and dropped 15.7 points to 45.5 – its lowest result since early 2016. The new orders sub-index fell 6.5 points to 51.1, suggesting modest activity growth for most parts of manufacturing in the months ahead.
- Five of the eight manufacturing sub-sectors expanded in July (trend data*), with expansions stronger in the larger sub-sectors of food & beverages (up 1.0 point to 60.3), petroleum, coal & chemical products (down 3.0 points to 56.9), non-metallic minerals (steady at 64.3) and machinery & equipment (down 1.1 points to 56.7).
- The input prices sub-index eased by 2.2 points but remained elevated at 68.1 in July, while wages lifted 1.8 points to 60.6 points. A sharp drop in manufacturing employment growth was also evident in July (down 7.8 points to 50.3 points).
Background: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) is a national composite index calculated from a weighted mix of the diffusion indices for production, new orders, deliveries, inventories and employment. An Australian PMI® reading above 50 points indicates that manufacturing activity is expanding; below 50, that it is declining. The distance from 50 indicates the strength of expansion or decline. Australian PMI® results are based on responses from a national sample of manufacturers that includes all states and all sub-sectors. The Australian PMI® uses the ANZSIC industry classifications for manufacturing sub-sectors and sub-sector weights derived from ABS industry output data. Seasonally adjusted and trend data are calculated according to ABS methodology. The Australian PMI® commenced in 1992.
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