Australia: manufacturing sector strong in September

Australia's manufacturing sector continued to expand in September on the back of a further pick-up in production growth and an increase in employment, new figures show. The Australian Industry Group-PricewaterhouseCoopers Australian performance of manufacturing index (PMI) rose a moderate 1.4 index points to 53.5 during the month following a 2.4 point rise in August.

A reading above 50 index points indicates expansion. UBS senior economist Adam Carr said the September PMI revealed a rising trend in the sector. "The survey shows an improving trend for the manufacturing sector, where activity has been hampered by a sluggish housing sector, increasing global competition and a relatively high Australian dollar," he said. The index found that the slight strengthening in activity was largely attributable to a further pick-up in production growth and an increase in employment.

The production growth sub-index rose 1.6 points to 55.1 points, while the employment sub-index jumped 7.6 points to 55.3. PricewaterhouseCoopers industrial products leader Graeme Billings said the return of moderate demand growth, easing cost pressures and lean inventories had helped underpin more stable conditions in the industry. However, he said the sector still faced challenges.

"While the improvement in activity is welcome, the sector remains under intense structural and competitive pressure, which requires manufacturers to retain a strong focus on innovation, skill development and cost control," he said. The index found that activity expanded in eight of twelve sectors in September, up from seven in August.

The fabricated metal product sector reported the strongest expansion in activity during the month, while growth also improved in machinery and equipment and transport equipment. However, growth moderated in chemicals, petroleum and coal products. In the construction-related sectors, activity fell for the third consecutive month in basic metal products, but expanded slightly in construction material products after a sharp fall in August.

Growth strengthened in the consumer-related sectors of food and beverages as well as wood, wood products and furniture, but eased in clothing and footwear. Meanwhile, activity continued to fall in textiles, and declined in paper, printing and publishing following a moderate increase the previous month. Ai Group chief executive Heather Ridout said the mixed result in the consumer sector showed that consumers remained jittery following recent interest rate rises.

"Consumers, however, are still nervous, which is being reflected in weaker results in those sectors dependent on consumer spending," she said. "It is clear that any further pick-up in manufacturing activity will depend upon the future course of housing and interest rates." Across the states, growth strengthened markedly in NSW, Western Australia and Tasmania, while Victoria reported its first increase in activity in three months. However, activity declined in Queensland and South Australia.

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