The Fence

Positive start to the new financial year for manufacturing

Australian manufacturing

Ai Group Chief Executive Innes Willox said: “With the encouraging lift in July (2020), Australian manufacturing has expanded for two consecutive months for the first time since October 2019. Despite the improvement, weak spots persist. July’s (2020) expansion was driven by the two largest manufacturing sectors: the food & beverage and machinery & equipment sectors. All other sectors are reporting difficult trading conditions due to the impact of COVID-19 and the underlying weakness of residential construction. Manufacturing employment, production and new orders were all higher than in June although the pace of improvement in new orders slowed over the month. Unfortunately, exports were again weaker in July (2020). The performance of the sector was in part due to stimulus measures including JobKeeper and the extension of the instant asset write-off arrangements which boosted sales and orders in the machinery & equipment sector. Against the positive signs from the manufacturing sector, the winding down of stimulus from September, the impact of the Melbourne lockdown and the severity of the outbreak, as well as tougher border restrictions are likely to weigh on the sector in coming months,” Mr Willox said.

Australian PMI®: Key Findings for July 2020

  • Six of the seven activity indices in the Australian PMI® indicated expansion in July (2020), with only the exports index contracting (down 5.8 points to 41.4). Expansion in new orders slowed (down 3.0 points to 52.7), with all other activity indices expanding at a faster rate than in June (2020) .
  • Four of the six manufacturing sectors in the Australian PMI® contracted in July (2020) (trend), with only the large food & beverage (up 1.9 points to 59.4) and machinery & equipment (up 3.2 points to 54.3) sectors indicating expanding conditions.
  • Input costs rose in July 2020 (up 3.3 points to 63.5) but remain below the long-term average (67.5 points since 2003). The selling prices index remained unchanged at 48.9 points, indicating that manufacturers’ selling prices declined at the same rate as in June (2020).
  • The average wages index eased by 1.0 point to 48.8, indicating falling average wages across the manufacturing sector. The seasonal bump in the index that usually occurs in July (2020) with the annual minimum wage decision will now likely occur in November (2020) when this year’s (2020) 1.75% increase for 2020-21 becomes operative across manufacturing awards.

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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