Manufacturing Activity Remains Subdued

4 Mar 08

Manufacturing activity remained subdued in February with the Australian Industry Group - PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI) rising 2.2 points to 51.4 (above the key 50.0 level separating expansion from contraction) following a drop of 8.4 points in January.

The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index (PMI) in February moved back above 50 - the level that separates expansion from contraction - rising 2.2 index points to 51.4.

The index dipped below the key 50 level in January, the first time in 19 months that manufacturing activity declined.

Manufacturers said strong demand from the mining sector and infrastructure spending helped activity expand.

Activity expanded in seven sectors in February, with growth strongest in fabricated materials, textiles, and miscellaneous manufactures.

Paper, printing and publishing also expanded, after five months of contraction.

Five sectors fell in February including clothing and footwear, and transport equipment.

Australian Industry Group chief executive Heather Ridout said worries about the prospects for global growth, higher interest rates and rising input costs continued to have "ongoing negative impact on the sector".

Ridout said the strong Australian dollar had "undermined any potential offsetting boost for manufactured exports at a time when demand for global manufactures is strong".

"The dollar, of course, is also contributing to lifting the intensity of import competition from already high levels," Ridout said in a statement.

PricewaterhouseCoopers global leader of industrial manufacturing Graeme Billings said costs would continue to put pressure on the industry, after growth in selling prices slowed in February.

"Cost pressures are unlikely to abate soon and this re-emphasises the task facing business in driving operational efficiencies and increasing overall productivity," Billings said in a statement.

Billings said seasonal factors that led to some factory shutdowns over the holiday period were continuing to constrain production for some firms.

While manufacturing eked out some modest growth, the production sub-index remained below the key 50 level for a second consecutive month in February but rose 0.4 points to 48.8.

Key findings for February:

• The Australian PMI rose 2.2 points to 51.4 in February following a weak January that was marked by seasonal shutdowns, global instability and input cost and interest rate concerns.
• Production and employment eased slightly.
• The slight improvement in activity in February reflected a lift in new orders and input deliveries while stocks also grew, though at a slower rate than in January.
• Input cost price growth accelerated in February, while selling prices rose more slowly than in recent months, indicating some margin squeeze.
• February saw growth in wages and capacity utilisation (unadjusted) rise.
• Manufacturers cited positive effects on activity from strong demand, particularly from the mining sector and infrastructure spending.  On the negative side were: import competition, lack of skilled labour, the rising cost of raw materials, the high Australian dollar, and Chinese competition.
• Seasonal factors in regard to factory shutdowns over the holiday break continued to constrain production for some firms.
• Activity grew in all states except South Australia and Tasmania.