Activity levels across Australia’s manufacturing sector improved at fastest pace in March

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Australia Coal Mining
A stacker/reclaimer places coal in stockpiles at the coal port in Newcastle June 6, 2012. Reuters/Daniel Munoz

Activity levels across the country’s manufacturing sector perked up at the fastest pace on record in March, the Australian Industry Group’s latest PMI report has shown. The result was led by improvements in new orders, exports and employment.

The Ai Group’s Performance of Manufacturing Index (PMI) climbed to 63.1 in seasonally adjusted terms last month. It exceeded the record high of 62.1 set in May 2002.

The index assesses perceived changes in activity levels across the manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving. Last month’s 63.1 indicated that activity levels improve from February and has been the fastest pace on record.

According to the Ai Group, last month marked the eighteenth month of expanding or stable conditions for the PMI, the longest run of continuous expansion since 2005. Employment, new orders and delivery sub-indexes were all placing record highs.

Of the eight sub-sectors in the Australian PMI, seven saw an expansion, and only one remained stable. Three of the eight sub-sectors grew at record highs, which include coal, petroleum, chemical and rubber products, and metal products and machinery and equipment subsectors.

As new orders track strongly, more manufacturers will likely need to boost their investment and employment to improve their capacity to meet future demand, which is perceived as a welcome news to the Reserve Bank of Australia (RBA). The new orders subindex suggests that strength will persist in the coming months.

The Ai Group said more manufacturers are becoming confident enough to employ more staff following a sustained period of expansionary activity last year. Stronger growth in sales, exports and supplier deliveries also indicate that current demand is robust.

Queensland manufacturing is performing well so far this year, recording 73.8 points in March and a record in January 2018 of 74.6 points (seasonally adjusted). Manufacturers in Queensland are seeing rising demand for machinery, equipment and other inputs from a comprehensive range of sectors, which include the mining, construction, agriculture and renewable sectors.

The Ai Group CEO Innes Willox said that challenges still remain despite stronger operating conditions across the sector. “While production and sales volumes are very strong, continuing input price pressures- notably for energy, a revival of wage levels and a further lift in the number of businesses reporting difficulty in hiring skilled staff- are combining to constrain margins and the capacity for further expansion,” he said, according to Business Insider Australia.