Manufacturing production returns to expansion: S&P Global

Research firm S&P Global has reported that Australia’s manufacturing sector experienced its first improvement in over a year in January, with the S&P Global Australia Manufacturing PMI rising to 50.2 (up from 47.8 in December), signalling a return to production growth, albeit marginal. The latest rise in the headline index was attributed to higher index readings across gauges of output, new orders, employment and stocks of purchases.

Meanwhile the rate of new order contraction eased in January, decelerating to the softest in nearly two years. While weak underlying demand and reduced client spending negatively affected new orders, some firms reported signs of market improvement. Export orders continued to fall at a solid rate, however, dampened by subdued business conditions overseas and trade uncertainties.

Headcounts were raised alongside production in January after falling at the end of 2024. Anecdotal evidence suggested that Australian manufacturers increased their staffing levels to cope with ongoing workloads. The rise in workforce capacity also supported a 26th successive month of backlog reduction.

Purchasing activity continued to shrink in the Australian manufacturing sector as new orders declined, further leading to lower stocks of purchases. Post-production inventories also fell amid lower demand and increased outbound shipment of goods for order fulfilment. Reflecting easing shipping congestions, broader lead times for the delivery of inputs to manufacturers lengthened at the least pronounced pace in 16 months.

Price pressures intensified for Australian manufacturers in January. The rate of input cost inflation was the highest since November 2022. Panellists often mentioned rising input prices and a softening domestic currency as reasons for the intensification of cost pressures. Consequently, selling prices climbed at the start of the year as firms shared their additional cost burdens with clients. The rate of output price inflation was the highest in eight months.

“January’s Australian Manufacturing PMI data revealed that business conditions improved for the first time in a year,” said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence. “Manufacturing production returned to growth after falling for over two years as new business fell at a noticeably slower rate. Firms were further willing to raise staffing levels, adding to signs of a turnaround in the goods producing sector.

“That said, purchasing activity fell at a faster rate while optimism levels also declined at the start of the year amid domestic and external uncertainties. At the root of the issue remains subdued demand, which will need to improve to inspire better confidence among manufacturers.”

Finally, sentiment in the Australian manufacturing sector remained positive at the start of 2025. Firms were optimistic that improvements in economic conditions and greater promotional efforts can help to drive sales growth. The level of confidence eased slightly since December, however, and remained below-average.

Image credit: iStock.com/whyframestudio