The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) increased by 8.1 points in February to a strong 59.3 points (results above 50 indicate expansion with the distance from 50 points indicating the strength of expansion). This was the fifth consecutive month of expansion and the strongest result since May 2002.
Six of the seven activity sub-indexes in the Australian PMI® expanded in February (seasonally adjusted). Encouragingly for the outlook, new orders (60.6 points) and sales (55.3 points) grew strongly. Production jumped from stable conditions in January to a strong expansion (65.3 points), as did employment (57.5 points). Deliveries lifted out of contraction (56.3 points) while exports strengthened further (57.0 points). Reflecting this surge in demand, inventories contracted mildly in the month (48.3 points).
Seven of the eight sub-sectors in the Australian PMI® improved in February (trend). Food & beverages posted a strong result (58.8 points), as did non-metallic mineral products (66.3 points) and machinery & equipment (60.1 points), all building on expansions in January. Metal products (56.1 points) and petroleum, coal & chemical products (53.0 points) continued expanding well, while wood & paper products recovered from contraction (51.9 points). Only printing & recorded media remained in the doldrums (45.1 points).
Comments from manufacturers in February indicate that demand looks to be increasing and confidence returning to some of the larger sub-sectors such as food processing and machinery and equipment (other than auto). Exports are continuing to provide a good source of growth, as are large transport infrastructure projects and increased activity in parts of mining and agriculture in response to the recovery in prices for bulk commodities, wool and some grains. On the inputs side, energy costs and energy reliability are posing a significant threat to ongoing profitability and viability for some manufacturers. Rising raw materials costs and supply constraints are causing increased price pressure and delaying some supplies. Also, intense competition is continuing, particularly from overseas firms.
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.
