Manufacturing shows improvement in June

The Australian Industry Group’s (Ai) Australian Performance of Manufacturing Index (PMI) was 49.6 for June, up 5.8 points from the previous month.

Readings of less than 50 show a contraction in activity; however, the increased PMI for June shows that the sector contracted much more slowly in June than in previous months.

The Australian Industry Group (Ai) attributes the improvement primarily due to an expansion in production and improvements in the new orders index and supplier deliveries. However, despite the falling Australian dollar, manufacturing exports continue to struggle, Ai Group said.

“The unexpected lift in the Australian PMI is a welcome, though tentative, sign that manufacturers’ efforts to fight back against the severe pressures facing the industry are beginning to pay off,” said Ai Group Chief Executive Innes Willox.

“The Reserve Bank’s reductions in the cash rate appear to be supporting a weak pick-up in local demand and the drop in the exchange rate may be assisting domestic producers in the local market. Export conditions, however, remain extremely challenging.

“This month’s improved reading (just short of the benchmark 50 points indicating growth) comes after two years of continuous decline and after two months of especially weak Australian PMI readings in April and May. However, there is a need to be cautious about a single month’s reading, particularly because the inventory sub-index expanded strongly again in June, suggesting that sales are still lagging behind production.

“Notwithstanding the very welcome fall in the Australian dollar over the past two months and the relatively low level of official interest rates, Australia remains a high-cost location for production and we need to generate a significant lift in productivity to restore competitiveness. This is critical if the manufacturing sector is to contribute to the economic resilience and diversification required as the mining investment boom fades.”

The Australian PMI for June 2013 is available here.