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Australian PMI®: Manufacturing growth at its strongest since 2010

The Australian manufacturing sector expanded for an eighth straight month in February, with the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) rising by 2.0 points to 53.5 - its highest level since July 2010 (readings above 50 indicate expansion in activity, the distance from 50 indicating the strength of the increase).

Ai Group Chief Executive, Innes Willox, said: "The manufacturing sector had a running start to 2016 with another month of expansion recorded for February. Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015. There is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to this turnaround. With firmer expectations of the dollar remaining at or about its current level, confidence is building and businesses are readjusting their strategies, giving a higher priority to domestic activities both internally and along their supply chains. 

"While the balance appears to be swinging to the positive, important challenges and fragilities remain and the sector is vulnerable to international volatility and adverse domestic policy changes. Important sub-sectors, including the metal products sub-sector, remain in contraction as does the large machinery & equipment sub-sector despite improving trends in recent months. Many businesses are being adversely impacted by the higher costs of imported inputs associated with the lower dollar. Businesses are also finding that supply chains are taking time to rebuild after the "hollowing out" that characterised the extended period of weakness for the sector       in recent years. The upcoming federal budget is an opportunity to add momentum to the recovery that is underway,” Mr Willox said.

Australian PMI®: Key Findings for February:

•      The Australian PMI® expanded for an eighth month in February, rising 2.0 points to 53.5.

•      Four of the eight manufacturing sub-sectors expanded (that is, above 50 points in three-month moving averages), led by food, beverages & tobacco (up 5.0 points to 61.7); wood & paper products (down 7.2 points to 57.1); and petroleum, coal, chemical & rubber products (down 2.7 points to 56.4). Non-metallic mineral products rebounded from January's contraction (up 5.7 points to 53.5).  

•         Textiles, clothing & furniture slipped into contraction (down 3.2 points to 46.9), while machinery & equipment moved very close to stabilising with its best result since June 2014 (up 1.7 points to 49.3).

•      Of the seven activity sub-indexes (see table below), production (up 7.2 points to 60.1), new orders (down 0.4 points to 52.4) and exports (down 0.2 points to 53.7) remained strongly positive, while sales bounced back from January's contraction (up 8.9 points to 53.0).

•      The stocks sub-index remained in expansion after its spike in January (down 6.7 points to 52.5), while employment remained in negative territory (up 0.3 points to 47.4).

•      The input prices sub-index was largely unchanged at 63.5 in February, while wages expansion slowed modestly (down 2.9 points to 56.4). 

•      Manufacturing selling prices slipped by 3.2 points to 48.3, ending two months of expansion. Coinciding with continued increases in input prices, this is indicative of tightening margins.

Full report (available at 9.30am): http://www.aigroup.com.au/portal/site/aig/economicindicators/

Media enquiries: Tony Melville 0419 190 347

Seasonally adjusted

Index
this month

Change from
last month

12 month
average

 

Index
this month

Change from
last month

12 month
average

Australian PMI®

53.5

+2.0

50.4

Exports

53.7

-0.2

52.5

Production

60.1

+7.2

51.5

Sales

53.0

+8.9

49.0

New Orders

52.4

-0.4

50.7

Input Prices

63.5

-0.1

66.8

Employment

47.4

+0.3

49.1

Selling Prices (unadj.)

48.3

-3.2

49.0

Inventories (stocks)

52.5

-6.7

49.3

Average Wages (unadj.)

56.4

-2.9

58.5

Supplier Deliveries

53.5

+6.4

50.3

Cap. Utilisation (%)(unadj.)

75.3

+4.0

72.5

* All sub-sector indexes in the Australian PMI® are reported as three-month moving averages (3mma), so as to better identify the trends in these volatile monthly data.

Background: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) is a seasonally adjusted national composite index based on the diffusion indices for production, new orders, deliveries, inventories and employment with varying weights.  An Australian PMI® reading above 50 points indicates that manufacturing is generally expanding; below 50, that it is declining.  The distance from 50 is indicative of the strength of the expansion or decline.  Australian PMI® results are based on responses from around 200 companies from a rotating sample of manufacturers. The manufacturing sub-sector categories in the PMI match the ANZSIC industry classifications for manufacturing and are weighted, based on 2011-12 industry output data from the ABS.