Manufacturing growth at strongest in six years

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  • Plant & Equipment

The beverages & tobacco manufacturing sub-sector expanded 5.0 points to 61.7 in February. The beverages & tobacco manufacturing sub-sector expanded 5.0 points to 61.7 in February. The beverages & tobacco manufacturing sub-sector expanded 5.0 points to 61.7 in February.

The Australian manufacturing sector is growing at its highest rate since July 2010, with February’s Australian Performance of Manufacturing Index (Australian PMI) rising by 2.0 points to 53.5.

"The manufacturing sector had a running start to 2016 with another month of expansion recorded for February," says Innes Willox, the CEO of the Australian Industry Group (Ai Group), which runs the index.

"Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015," he adds.

Production was up 7.2 points to 60.1 (with the distance from 50 indicating the strength of the increase) while sales bounced back from January’s contraction by increasing 8.9 points to 53.0. New orders were down 0.4 points and exports were down 0.2 points, but both remained in growth territory at 52.4 and 53.7 respectively.

"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," Willox says.

"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," Willox adds.

"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 Australian PMI indicates that four of the eight manufacturing sub-sectors expanded in February, 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).

Machinery & equipment was up 1.7 points to 49.3 — meaning it is very close to stabilising — but textiles, clothing & furniture is now in contraction territory (down 3.2 points to 46.9).

 

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