Manufacturing contraction slowed in June, says AiGroup

Things may be looking up for manufacturing in Australia. While manufacturing activity continued to contract in June, the rate of contraction eased, according to the latest Australian Industry Group (AiGroup)-PwC Australian Performance of Manufacturing Index (PMI).

At 47.2, the seasonally adjusted Australian PMI was 4.8 points stronger in June. An Australian PMI reading above 50 points indicates that manufacturing is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline.

“The contraction afflicting manufacturing extended into its fourth month in June as the high dollar, domestic and global uncertainties, the slump in residential and commercial construction, and concerns over the impacts of the carbon tax weighed on the sector,” said AiGroup Chief Executive Innes Willox.

“As evidence of the waves of structural and cyclical pressures confronting manufacturers, the Australian PMI recorded expansions in only three months during the 2011-12 financial year. On a more positive note, the production, new orders and employment subindexes all lifted in June, providing hope for an expansion down the track.”

In June, four subsectors expanded: clothing and footwear (62.4 points); paper, printing and publishing (58.6); transport equipment (51.7); and machinery and equipment (51.7). The new orders subindex also improved; it was 5.6 points stronger at 46.2.

Wages and input costs continued to rise, while manufacturers’ selling prices continued to decline, the PMI showed. Manufacturing production was 8.6 points higher at 47.5.

“The competitive squeeze in manufacturing continued in June thanks to the competing pressures of falling sales prices and continued wage growth,” said Jeremy Thorpe, PwC Partner-Economics and Policy.

“The fall in the Chinese PMI is concerning if this indicates a further slowing of the Chinese economy, with negative implications for the Australian natural resources sector.”