Good December bodes well for Aussie manufacturing

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Australian manufacturing ended 2016 on a high, with the Australian Performance of Manufacturing Index (Australian PMI) increasing by 1.2 points to 55.4 in December.

"Despite a small fall in sector-wide employment in December, manufacturing production, sales, exports and new orders all grew strongly in the month, providing a running start to the new year," says Innes Willox, chief executive of index creator Australian Industry Group (Ai Group).

The Australian PMI results are based on responses from around 200 companies from a rotating sample of manufacturers. Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase.

"Four of the five larger manufacturing sub-sectors – food & beverages; petroleum, coal, chemicals & rubber products; non-metallic mineral products; and machinery and equipment – saw healthy growth while the metal products sub-sector closed a difficult year in the red," Willox says.

"The positive result for producers of machinery and equipment comes despite the steading unwinding of automotive assembly and points to a tentative pick-up in business investment," he adds.

The report shows that six of the seven sub-indexes improved from November, headed by a surge in exports (up 12.6 points to 68.5) and strong expansions in new orders (up 1.1 points to 60.6) and sales (up 5.3 points to 58.8).

Employment slipped in December (down 4.9 points to 47.4), in line with recently weaker jobs growth.

"Comments from manufacturers in December indicate that demand (albeit somewhat mixed) appears to be improving again after a weak patch in the latter half of 2016," the report says.

"The recovery in commodity prices has led to better conditions for manufacturers exposed to the mining sector, with some revival of mining investment and maintenance spending. However, surging energy costs, weaker local demand and slower spending on particular major projects is depressing activity for some manufacturers."

The report shows that input prices remained elevated in December (up 0.3 points to 62.8) while the selling prices sub-index fell 6.1 points to a contractionary 45.4, "indicating a continued tightening of margins for manufacturers heading into 2017".


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