Australian PMI®: Manufacturing surges into expansion in October

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) increased by 9.6 points to 56.3 in October, indicating expanding conditions for the first time since July (readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion).

Australia's manufacturing industries grew solidly in October with production, employment, sales and exports all moving convincingly into growth territory. Once again, the large food & beverages sector led the way with strong contributions from machinery & equipment manufacturers and with support from firmer growth in the textiles, clothing, footwear, paper & printing group. The chemicals sector stabilised in October while the pace of contraction eased in both the metal products and building materials sectors.

Respondents across all sectors noted a jump in sales and new orders as a result of pent up demand from the initial activity restrictions. The jump into expansion was driven by large improvements in New South Wales, which rose into expansion, and Victoria, which remained in contraction but improved from a deep contraction in September .

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Ai Group Chief Executive Innes Willox said: "With the quantity of fiscal support easing in October and with the tax cuts only just starting to flow through, the lift in sales and the strong growth of new orders are particularly encouraging signs of improving household and business confidence. The solid national performance was achieved despite another month of contraction in Victoria. With restrictions in Victoria being lifted there are very good prospects of further strength in the closing months of 2020," Mr Willox said.

Australian PMI®: Key Findings for October

• All seven activity indices in the Australian PMI® were in expansion in October (see table below), with supplier deliveries (up 16.0 points to 58.8) and new orders (up 13.3 points to 58.4) experiencing large increases – possibly because some manufacturers anticipate higher production in the coming months as activity restrictions are eased. Sales also climbed significantly (up 14.9 points to 56.4) in October, while the employment index returned to positive territory (up 7.6 points to 55.3).
• Among the six manufacturing sectors in the Australian PMI® the large food & beverages (up 2.0 points to 61.6) and machinery & equipment (up 0.4 points to 53.9) manufacturing sectors expanded, as did the smaller, diverse TCF, paper & printing sector (up 2.1 points to 53.7). Contraction was evident in the metal products (up 0.6 points to 47.4) and building materials (up 2.6 points to 46.1) sectors, while the chemicals sector was broadly stable (up 2.3 points to 50.9).
• The input price index increased to its highest result since April (up 8.7 points to 66.6), with some respondents noting difficulty transporting goods across state borders was increasing costs. Selling prices, on average, increased for the first time since April (up 4.3 points to 53.6).
• The average wages index improved into expansion (up 5.0 points to 57.3), recording its highest result since March.

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Results above 50 points indicate expansion. * All indexes for sectors in the Australian PMI® are reported in trend terms (Henderson 13-month filter).

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. More information about the history and methodology of the Australian PMI® is available online.

Media Enquiries: Tony Melville: 0419 190 347