Australia’s manufacturing sector recorded a fifth consecutive monthly decline in output in June, even as overall business conditions showed modest improvement, according to the latest S&P Global Australia Manufacturing PMI, with manufacturers continuing to face supply disruptions, elevated costs and subdued demand.
S&P Global said its seasonally adjusted Australia Manufacturing Purchasing Managers’ Index (PMI) rose to 51.5 in June from 50.7 in May, marking the third consecutive month above the 50-point no-change threshold and the highest reading since January.
The improvement was driven by higher employment, increased input inventories and longer supplier delivery times, although production and new orders remained in contraction.
According to the report, manufacturing output declined for a fifth successive month as softer demand, broader economic weakness and higher prices weighed on production. However, the pace of decline eased and was described as only marginal.
New orders also fell for a fourth consecutive month, with manufacturers citing customer uncertainty and rising prices as factors limiting demand. S&P Global noted that the decline was the weakest during the current contraction, while export orders returned to growth after two months of decline.
The report said inflationary pressures remained significant despite easing sharply from May. Manufacturers continued to report higher fuel and freight costs, alongside rising prices for raw materials such as metals and plastics, which were linked to the ongoing effects of the conflict in the Middle East. Many businesses also passed higher input costs on to customers through increased selling prices.
The report noted that supply-chain disruptions persisted during June, with supplier delivery times lengthening substantially. Some respondents said suppliers were consolidating deliveries to reduce costs, prompting manufacturers to build inventories of inputs as a precaution against potential shortages.
Pre-production inventories increased for the second time in three months, reaching their highest level since September, while purchasing activity declined slightly.
Manufacturers also continued to add staff for a second straight month, with respondents attributing hiring to replacing departed employees and preparing for future projects. It noted that Increased workforce capacity, combined with weaker demand, allowed companies to reduce outstanding work, although the decline in backlogs was the slowest since January.
Andrew Harker, Economics Director at S&P Global Market Intelligence, said geopolitical tensions remained a key influence on the sector during June.
“Although the memorandum of understanding for a cessation of hostilities between the US and Iran was signed in June, the war in the Middle East continued to heavily impact the Australian manufacturing sector during the month,” Harker said.
He said supply-chain disruptions and cost pressures remained significant despite some easing in inflation.
“Suppliers’ delivery times lengthened substantially and costs rose rapidly again, although a much slower increase in prices during June hopefully bodes well for the months ahead unless the geopolitical situation deteriorates again,” he said.
Harker added that manufacturers had continued to prepare for an eventual recovery in demand.
“Firms have been preparing for future projects through the hiring of staff, and have guarded against supply issues by increasing stocks of purchases, leaving them well positioned to ramp up production once new orders return to growth,” he said.
S&P Global said manufacturers remained cautiously optimistic about the year ahead, with confidence reaching a four-month high in June on expectations that geopolitical conditions would improve and new orders would recover.
However, it noted that sentiment remained below levels recorded before the outbreak of the conflict in the Middle East.
