Finally some good news this morning for manufacturing:
The latest seasonally adjusted Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) rose 5.8 points to 49.6 in June. At just 0.4 points below the 50-point mark that separates contraction from expansion, if maintained at this level, this will signal that the manufacturing sector is stabilising, after two years of continuous contraction.
June 2013 saw the highest level for the Australian PMI® since June 2011, which was the last time the Index moved above 50 points.
The Australian PMI® sub-indexes for production and inventories indicated mild expansion in June, with readings above 50 points. New orders and supplier deliveries were neutral, while capacity utilisation moved back over 70%.
Exports continue to struggle, with the exports sub-index only partially recovering from its recent record lows. At just 30.3 points, the exports sub-index continues to signal extremely tough exporting conditions, despite the fall in the Australian dollar.
Although exports continue to suffer, the solid improvement in the Australian PMI® since May and especially April might already be reflecting the benefits of the fall in the Australian dollar for those who compete against imports. Some survey respondents noted a stronger pick-up in local orders, over and above the usual end-of-financial-year rush.
The benefits of the most recent cash rate cuts might also be filtering through, although survey respondents noted that local demand and confidence remain weak.
That’s a good summary. I’ll only add that the EOFY bounce is obvious in past years so let’s be little cautious but it’s not usually this large. The bounce is certainly not coming from export orders:
It’s either import competitors or rate cuts.
Advertisement
And the turnaround looks broad based:
Capacity utilisation is still languishing at 70% so there’ll be no reason to either invest or employ yet but it’s good news and let’s hope it continues to build.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
