Strong expansion in Australian manufacturing in March, PMI shows

Australian manufacturing experienced its strongest expansion in activity in 12 years, with the Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) rising by 4.6 points to 58.1 in March 2016.

Readings above 50 in the Australian PMI reflect expansion in activity. The higher the number above 50, the greater the strength of the increase. This surge is the strongest level of expansion since April 2004.

This is also the ninth straight month of expansion — the longest period of expansion since 2006. The manufacturing selling prices sub-index slipped slightly by 0.5 points to 47.8, indicating a continued environment of tightening margins with limited ability to pass on higher input costs to customers.

“Growth in manufacturing production, sales, employment, exports and new orders fuelled a surge in the Australian PMI in March. Significantly, the important machinery and equipment subsector, which has been buffeted by the step-down in mining investment and the fading auto assembly sector, moved out of contraction in March for the first time in more than four years,” said Ai Group Chief Executive Innes Willox.

“The strong manufacturing performance and its expansionary run since the middle of 2015 are in large part due to the boost provided by the lower Australian dollar. Even though the dollar has appreciated quite strongly since mid-January, the local currency is still close to 30% lower against the US dollar and almost 20% lower against the Trade Weighted Index compared with three years ago. The positive impacts of this depreciation have taken some time to accumulate as businesses have become more confident that it will be sustained. With momentum positive and new orders growing strongly, the positive trend appears to have some way to run.

“That said, the sharp lift in the value of the Australian dollar over the past two and a half months (by 10% against the US dollar and by over 7% against the TWI) will test some manufacturers and, if maintained, can be expected to slow the pace of recovery over the months ahead,” Willox said.

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