▪ The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI® ) jumped 3.8 points higher in August to 59.8 points (seasonally adjusted). Results above 50 points indicate expansion with higher results indicating a stronger expansion.
▪ This was the highest monthly result for the Australian PMI® since 2002. It marked an eleventh consecutive month of expansion for the Australian PMI® and the longest consecutive run of expansion since 2007 in the seasonally adjusted series.
▪ Six of the seven activity sub-indexes in the Australian PMI® expanded in August (seasonally adjusted). Production and new orders were especially strong (61.4 and 64.3 points), but they were coupled with a robust expansion in inventories (58.9 points) rather than in sales (50.9 points). Exports contracted mildly (49.3 points). This suggests current activity is geared towards future orders and stockpiling rather than for immediate delivery. Employment and supplier deliveries expanded at a slower pace in August than in July.
▪ This recovery is occurring despite the ongoing withdrawal of automotive production from Australia and is due to accelerating growth in other large sub-sectors. Seven of the eight sub-sectors in the Australian PMI® expanded in August (trend). Only ‘textiles clothing furniture and other manufacturing’ contracted (46.1 points) but even this sub-sector improved from previous months. Non-metallic mineral products (72.3 points) and wood & paper products (71.1 points) expanded very strongly in August due to local demand from the building industry and from food manufacturing and processing (for packaging products).
▪ Positive sources of local demand for manufacturers of chemicals, metals, machinery and equipment in August included infrastructure construction; mining (re-investing as metals prices recover); agriculture (good crops and livestock); renewables; and water utilities.
▪ Input costs and especially energy costs are of great concern to manufacturers. The recent lift in the dollar is dampening imported input prices but also dampening export sales.
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.
