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Manufacturing surges in March: Australian PMI®

07 April, 2016

The Australian manufacturing sector surged in March to its strongest level of expansion since April 2004.

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) has risen by 4.6 points to 58.1 (Readings above 50 indicate expansion in activity and the distance from 50 indicates the strength of the increase).

Ai Group Chief Executive, Innes Willox, said: "Growth in manufacturing production, sales, employment, exports and new orders fueled a surge in the Australian PMI® in March. Significantly, the important machinery and equipment subsector, which has been buffeted by the step-down in mining investment and the fading auto assembly sector, moved out of contraction in March for the first time in more than four years.

"The strong manufacturing performance and its expansionary run since the middle of 2015 are in large part due to the boost provided by the lower Australian dollar. Even though the dollar has appreciated quite strongly since mid-January, the local currency is still close to 30 per cent lower against the US dollar and almost 20 per cent lower against the Trade Weighted Index compared with three years ago. The positive impacts of this depreciation have taken some time to accumulate as businesses have become more confident that it will be sustained. With momentum positive and new orders growing strongly, the positive trend appears to have some way to run.

"That said, the sharp lift in the value of the Australian dollar over the past two and a half months (by 10 per cent against the US dollar and by over 7 per cent against the TWI) will test some manufacturers and, if maintained, can be expected to slow the pace of recovery over the months ahead," Mr Willox said.

Australian PMI®: Key Findings for March:

  • The Australian PMI® expanded for a ninth straight month in March – the longest period of expansion since 2006 – rising 4.6 points to 58.1.
  • The seven activity sub-indexes all improved in March (see table below) with production (largely unchanged at 60.0 points) and new orders (up 9.3 points to 61.7) now expanding strongly.
  • Five of the eight manufacturing sub-sectors expanded (that is, above 50 points in three-month moving averages) led by the largest sub-sector of food, beverages & tobacco (up 9.3 points to a record 71.0). Wood & paper products (up 8.0 points to 65.1) also expanded strongly while the large machinery & equipment sub-sector moved out of contraction for the first time since January 2012 (up 1.6 points to 50.9).
  • The large metal products sub-sector fell again (down 2.3 points to 41.8), with respondents citing reduced demand, increasing input costs and an uncertain economic outlook as reasons for continuous contraction since September 2010.
  • The input prices sub-index was largely unchanged at 63.7 in March while wages** expansion slowed further (down 2.6 points to 53.8), reflecting recent patchy demand for labour in manufacturing.
  • The manufacturing selling prices sub-index** slipped slightly by 0.5 points to 47.8 indicating a continued environment of tightening margins with limited ability to pass on higher input costs to customers.

Full report: http://www.aigroup.com.au/portal/site/aig/economicindicators/

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