Manufacturing holds its strength

By
Friday, 27 December, 2002

The Australian Performance of Manufacturing Index (PMI) is produced by the Ai Group in association with PricewaterhouseCoopers and has shown that manufacturing output remains strong and steady.

However, with the index having eased from the peaks attained in June, there is no sign of overheating.

The PMI was 56.3 in October - down just 0.1 from the previous month.

"The strength of the index is encouraging," Australian Industry Group deputy chief executive, Heather Ridout, said. "It shows that the sector is continuing to expand but at a sustainable pace within the current monetary policy settings.

"The continued steady growth in new orders is a particularly good sign. Construction related manufacturing sectors have continued to underpin the overall performance. While there may be some easing in residential construction over the coming months, there is evidence that this will be partly offset by non-residential building activity.

"If we can maintain PMI readings of around 55 points for the next two months, and I am confident that this can be achieved, it will point to manufacturing growth of around 4 per cent for year ending December quarter 2002," Ridout said.

PricewaterhouseCoopers' corporate industrial products leader, Bruce Carlstein, said the increase in employment and steady growth of new orders revealed in the October Index were positive signs.

"The stability in the PMI and the growth in new orders since coming off the June quarter peaks will give some confidence to manufacturing firms looking ahead," he said. "The level of new order growth in most states suggests continuing support for selected investment for growth. At the same time, companies need continued focus on working capital, particularly inventory levels."

The production index fell 1.2 points to 59.0. As in September, 10 of the 12 manufacturing sectors reported production growth, during October. Construction-related sectors continued to underpin the overall performance with all recording solid production increases.

Consumer-based sectors including food and beverages, textiles, transport equipment also recorded strong production growth. The chemicals, petroleum and coal products sector was also strong. Queensland and South Australia showed the strongest manufacturing performance with indexes of 64.9 and 64.4 respectively. NSW, at 50.4, was the weakest performer.

New orders growth remained steady, easing by just 0.1 points to 57.9 from the September reading. Firms of all sizes reported high new orders in Victoria, Queensland, SA and WA. There was a small decline in NSW; in Tasmania there was no change in new orders.

Employment recorded a small increase in October with the index rising to 52 reversing the September decline that saw the index's first decline (reading below 50) in 10 months. It rose in all states except NSW. Strongest gains were in the textiles, fabricated metal parts and basic metal products sectors.

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