S&P Global reports manufacturing sector’s return to expansion

S&P Global has reported that Australia’s manufacturing sector returned to growth in November. According to the S&P Global Manufacturing PMI, a fresh increase in new orders supported higher production, though new exports continued to fall. Meanwhile, hiring and purchasing levels increased with greater new work inflows, but stocks of purchases fell amid worsening delivery delays.

Despite rising demand, input price inflation eased and in part led to the slowest increase in selling prices for a year.

The headline seasonally adjusted Purchasing Manager’s Index (PMI) posted 51.6 in November, up from 49.7 in October. Rising past the 50.0 no-change mark, the latest reading signalled that manufacturing sector conditions improved following a brief deterioration in October. The rate of expansion was the strongest since August.

Effective business growth initiatives and the introduction of new products underpinned the first rise in new orders since August. This was despite new export orders falling for a third straight month amid subdued international trade conditions. The renewal of new business growth spurred a corresponding upturn in production midway through the fourth quarter.

Improved demand was accompanied by rising business confidence. Optimism regarding output in the year ahead increased since October, with panellists often citing business expansion plans and expected improvements in economic conditions to spur sales growth.

To cope with both current and future output growth, Australian manufacturers hired additional staff in November. The expansion in workforce capacity was effective in lowering outstanding orders as backlogs fell for the seventh month in a row.

Anecdotal evidence further suggested that goods producers faced difficulties in passing on increased costs for raw materials, shipping, and suppliers to clients amid heightened competition.

“The Australia Manufacturing PMI showed that the goods producing sector returned to growth in the penultimate month of the year. While modest, the pace of improvement was the quickest in three months, driven by fresh increases in both new business and output,” said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence. “Forward-looking indicators, including the New Orders and Future Output indices, pointed to the likelihood for growth to sustain in the near term. It was also positive to see headcounts rising at a pace among the fastest so far this year.

“Supply conditions remained challenging, however, with goods producers facing the worst lengthening of delivery times since last December amid supply constraints, shipment delays and congestions at ports. That said, prices were not immediately impacted as rates of inflation eased in November.”

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