Surge in manufacturing in March

The Australian Industry Group (Ai Group) has reported that the local manufacturing sector surged in March to its strongest level of expansion since April 2004, with the Ai Group Australian Performance of Manufacturing Index (Australian PMI) rising by 4.6 points to 58.1. Readings above 50 indicate expansion in activity and the distance from 50 indicates the strength of the increase.

“Growth in manufacturing production, sales, employment, exports and new orders fuelled a surge in the Australian PMI in March,” said Innes Willox, Ai Group chief executive. “Significantly, the important machinery and equipment subsector, which has been buffeted by the step-down in mining investment and the fading auto assembly sector, moved out of contraction in March for the first time in more than four years.

“The strong manufacturing performance and its expansionary run since the middle of 2015 are in large part due to the boost provided by the lower Australian dollar. Even though the dollar has appreciated quite strongly since mid-January, the local currency is still close to 30% lower against the US dollar and almost 20% lower against the Trade Weighted Index compared with three years ago. The positive impacts of this depreciation have taken some time to accumulate as businesses have become more confident that it will be sustained. With momentum positive and new orders growing strongly, the positive trend appears to have some way to run.

“That said, the sharp lift in the value of the Australian dollar over the past two and a half months (by 10% against the US dollar and by over 7% against the TWI) will test some manufacturers and, if maintained, can be expected to slow the pace of recovery over the months ahead,” Willox said.

All seven activity sub-indexes improved in March with production (largely unchanged at 60.0 points) and new orders (up 9.3 points to 61.7) now expanding strongly.

Five of the eight manufacturing subsectors expanded, led by the largest subsector of food, beverages and tobacco (up 9.3 points to a record 71.0). Wood and paper products (up 8.0 points to 65.1) also expanded strongly while the large machinery and equipment subsector moved out of contraction for the first time since January 2012 (up 1.6 points to 50.9).

The large metal products subsector fell again (down 2.3 points to 41.8), with respondents citing reduced demand, increasing input costs and an uncertain economic outlook as reasons for continuous contraction since September 2010.