The CBA Manufacturing PMI fell from 55.0 in June to 52.4 in July, indicating a continued but modest expansion by historical standards.
While the July readings point to a lacklustre start to Q3, the leading indicators point to a limited downside with firms remaining ‘very positive’ on the outlook for the year ahead.
Commenting on the current state of Australia’s manufacturing sector, CBA Chief Economist Michael Blythe said firms are increasing employment levels despite manufacturing activities proving volatile of late.
The sector continues to expand but slowing is in train,” Mr Blythe said.
“The downside looks limited, however, with firms remaining very positive on the outlook for the year ahead.”
“They are also indicating that employment is lifting on the back of planned business expansion and inventories are lifting in anticipation of additional work. Demand appears strong enough to allow relatively rapid lift in output prices.”
He said there has been no sign of any weakness in business confidence that would magnify the negative impact of a trade war.
“That weakness is not evident at this early stage,” Mr Blythe continued.
“New export orders fell in July. But they remain comfortable in expansion territory.”