Manufacturing goes positive again

The Australian PMI moved back into the black in June, increasing by
9.9 points to 51.5 (readings above 50 points indicate expansion in
activity, with higher results indicating a faster rate of expansion),
according to the AiGroup.

The June result comes in the wake of
April’s largest ever monthly fall in the Australian PMI. However, while
the result is the largest ever monthly rise, it was narrowly focused on
some sub sectors and indicates an improvement from recent depths rather
than a recovery to buoyant conditions.

Almost all of the
improvement reflected in June’s Australian PMI was concentrated in the
large food and beverages sector, with new orders from food wholesale
distributors improving with the relaxation of trading restrictions. Less
positively, manufacturers who supply locally made metal products and
building materials to the construction industry reported a sharp
reduction in new orders.

Ai Group chief executive Innes Willox
said that the manufacturing performance edged ahead in June largely on
the back of a solid lift in the large food and beverages sector as
restrictions on cafes and restaurants were eased.

“The machinery
and equipment sector enjoyed a spike in sales associated with
end-of-financial year buyers taking advantage of the expanded instant
asset write-off provisions,” Willox said.

However, Willox added
that the building materials, metals and chemicals sectors remained in
contraction. Across the manufacturing sector, production lifted, and
encouragingly new orders rebounded strongly following sharp contractions
in April and May.

“Employment on the other hand merely stabilised
after the contractions of the previous two months. Wage levels also
levelled off after the very rare fall recorded in May. We are still well
short of a recovery even with the quantity of fiscal stimulus in the
economy and the next couple of months will provide a critical test of
how well the economy is positioned to cope with the withdrawal of
stimulus currently scheduled for the end of September,” Willox said.

Australian PMI findings for June:

  • Three
    of the seven activity indices in the Australian PMI indicated expansion
    in June, three indicated contraction and one was stable (see table
    below). Production (up 9.9 points to 52.3), sales (up 19.0 points to
    56.1) and new orders (up 20.6 points to 55.7) jumped into expansion
    while the manufacturing exports index improved but remains in
    contraction (up 16.1 points to 47.2), indicating declining exports.
  • Five
    of the six manufacturing sectors in the Australian PMI contracted in
    June (trend), with only the large food and beverage sector indicating
    expanding conditions (up 0.4 points to 55.4). Some machinery and
    equipment (up 1.9 points to 48.2) manufacturers reported that the
    extension to the instant asset write-off for businesses helped to
    increase demand.
  • Input costs continued to increase in June but
    at a slower rate than the previous month (down 5.2 points to 60.2).
    Manufacturers’ selling prices declined, on average, but at a slower rate
    than in May (up 6.5 points to 48.9).
  • The average wages index
    increased by 4.2 points to 49.8, indicating stable average wages across
    the manufacturing sector. The seasonal bump in the index that usually
    occurs in July with the annual minimum wage decision will now likely
    occur in November when this year’s 1.75 per cent increase becomes
    operative across manufacturing awards.

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