The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) increased by 1.1 points to 50.9 points in October, signaling a very mild expansion from September across the manufacturing sector (results above 50 indicate expansion, the distance from 50 points indicates the strength of expansion).
This shift to mildly expansionary conditions in the Australian PMI® in October was driven by stronger growth in exports as well as in sales and new orders. This highlights the growing importance of exports to manufacturers and suggests further growth ahead.
Four of the five activity sub-indexes in the Australian PMI® expanded in October. Sales (55.0 points) and new orders (54.7 points) expanded solidly. Exports (56.0 points) returned to expansion from stable conditions while production (49.7 points) eased. Employment (47.7 points) remains contractionary and inventories (45.9 points) were run down in the month (likely the result of some lingering oversupply).
Three of the eight sub-sectors in the Austra PMI_Oct2016_141216slian PMI® expanded in October (three month moving averages) and one sub-sector was stable. Printing & recorded media (56.8 points) continued growing while petroleum & chemical products (55.4 points) continued a long run of expansion and machinery & equipment (54.1 points) expanded again. Food & beverages (50.4 points) lost some steam but remained stable. Metal products (47.2 points) slipped back into contraction, while textiles & other goods (32.5 points), wood & paper (38.8 points) and non-metallic minerals (45.3 points) moved further into contraction.
Comments from manufacturers in October indicate that weather conditions may have stifled activity in some regions. Stronger exports and increasing local market shares (import replacements) are boosting activity for many, but input cost pressures are continuing and some manufacturers cite difficulties in passing on price increases. Construction projects in NSW are boosting activity in that state but a lack of large projects and slower Australian mining construction continue to drag on activity elsewhere, with intense competition to supply a smaller number of projects. High electricity prices and supply problems significantly affected some manufacturers in South Australia.
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.
