Manufacturing

Manufacturing growth remains robust in October 2018

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The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) fell slightly by 0.7 points to 58.3 in October 2018, indicating further expansion but at a marginally slower pace than the previous month. This result extended the index’s period of uninterrupted growth to 25 months (readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase).

Ai Group Chief Executive Innes Willox said: “The strength of Australia’s manufacturing sector continued into October 2018 with production, domestic sales and new orders all growing at encouraging rates. Employment also lifted – although at a slower pace than in September 2018. The positive conditions extend widely across this very diverse sector of the economy with food & beverages – the largest manufacturing sub-sector – leading the way in October 2018. Other large sub-sectors including metal products, non-metallic minerals and chemicals also contributed to the positive overall reading as did the smaller sub-sectors of wood & paper products and printing & recorded media. The machinery & equipment sector dipped into negative territory as lower sales to rural businesses and higher costs for imported inputs linked with the lower Australian dollar contributed to a weaker performance. While manufacturers are working hard to sustain these robust conditions, the uncertainties hanging over energy prices and energy policy continue to cloud the medium and longer-term outlook – particularly for the more energy-intensive segments of the industry. The economic uncertainty is also impacted by drought, global trade disputes, the fluctuating dollar, declining consumer sentiment, fallout from the Royal Commission on lending and the looming Federal election,” Mr Willox said.

Australian PMI®: Key Findings for October 2018:

  • The Australian PMI® has indicated positive conditions (results above 50 points) for 25 consecutive months – the longest run of recovery or expansion since 2005.
  • For a third consecutive month, all seven activity sub-indexes in the Australian PMI® expanded in October 2018. Production (up 2.9 points to 61.6), supplier deliveries (up 3.7 points to 60.9) and sales (up 2.3 points to 59.9) were all encouragingly strong, while employment (down 5.4 points to 52.6), new orders (down 3.8 points to 58.8) and exports (down 3.8 points to 55.1) all slowed in comparison to September 2018.
  • Seven of the eight manufacturing sub-sectors expanded in October 2018 (trend data), with machinery & equipment the only exception in recording a stable result (down 1.6 points to 49.4). Expansions were strong in the food & beverages (up 0.5 points to 61.2) and wood & paper products (up 2.4 points to 70.7) sub-sectors.
  • The input prices sub-index eased back in October 2018 (down 5.6 points to 72.8) after rising quickly in the past three months. Ongoing problems with high energy costs and prices for imported components were noted by many manufacturers. The wages sub-index also fell back from September 2018’s record high (down 2.3 points to 67.0).
  • The manufacturing selling price sub-index increased by 0.9 points to 57.1 in October 2018, indicating more widespread price increases for manufacturing customers after years of falling prices.

Background: The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI®) is a national composite index calculated from a weighted mix of the diffusion indices for production, new orders, deliveries, inventories and employment. An Australian PMI® reading above 50 points indicates that manufacturing activity is expanding; below 50, that it is declining. The distance from 50 indicates the strength of expansion or decline. Australian PMI® results are based on responses from a national sample of manufacturers that includes all states and all sub-sectors. The Australian PMI® uses the ANZSIC industry classifications for manufacturing sub-sectors and sub-sector weights derived from ABS industry output data. Seasonally adjusted and trend data are calculated according to ABS methodology. The Australian PMI® commenced in 1992. More information about the history and methodology of the Australian PMI® is available online.

Source: Ai Group

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