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Manufacturing stronger but conditions still challenging

11 July, 2006

Manufacturing activity strengthened in June with The Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI™) rising 5.6 points to 54.5.

A lift in new orders, supplier deliveries and production underpinned the strengthening in activity, despite further rises in raw material costs and the earlier increase in official interest rates. Inventories increased only marginally and there were further widespread falls in employment.

Ai Group Chief Executive, Heather Ridout, said the June result was a welcome improvement after a difficult year for the industry.

"The June Australian PMI™ constitutes a better than expected year end, underpinned by further growth in consumer demand and early production for upcoming new passenger vehicles.

The result was encouraging and seemed to shrug off factors such as higher fuel costs and interest rate pressures. Nevertheless, underlying conditions remain challenging, with further industry restructuring likely" Ridout said.

PricewaterhouseCoopers Industrial Products Leader, Graeme Billings, said consumer-based sectors had generally continued to strengthen in June, but there was also evidence of an upturn in a range of industrial-based sectors, as well as those sectors leveraged to construction activity.

"While these signs of stronger domestic demand are positive for the industry, domestic manufacturers still need to remain focused on becoming more competitive internationally, which means lifting capital intensity, stripping out unnecessary costs and continuing to invest in innovation. 

The continuing decline in employment and lean inventory levels suggests that manufacturers are moving in this direction," Billings said.

Australian PMI™ Key Findings in June:

The Australian PMI™ increased 5.6 points to 54.5.
- Strengthening in activity was underpinned by rises in new orders, supplier deliveries and production. Inventories, however, increased only marginally and employment continued to fall.
- Exports expanded moderately in June. Raw material cost pressure remained strong, although at a slower rate than in May.
- Growth was reported in ten of twelve sectors, up from seven in May. 
- Activity continued to expand in most consumer-based sectors and picked up in a range of industrial-based sectors and those sectors sensitive to construction activity.
- Victoria and South Australia saw an upturn in activity, while conditions improved in New South Wales and rebounded in Queensland and Tasmania. Activity declined in Western Australia.

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