Australia’s manufacturing sector showed further signs of stabilisation in July as the country’s private sector recorded stronger growth, with renewed demand supporting output, hiring and business activity, according to the latest flash Purchasing Managers’ Index (PMI) data released by S&P Global.
The seasonally adjusted S&P Global Flash Australia PMI Composite Output Index rose to 52.6 in July from 50.4 in June, marking a second consecutive month of expansion and its highest reading since the beginning of the year.
S&P Global said the result was consistent with a moderate expansion in private sector output that exceeded the series average.
While services continued to drive overall growth, manufacturing output was broadly unchanged from June, representing the sector’s strongest performance since the start of 2026.
The survey also found that manufacturing firms joined service providers in reporting an increase in employment during the month.
According to S&P Global, new business increased for the first time in five months, ending a four-month period of declining demand.
The improvement was recorded across both the manufacturing and services sectors, with respondents citing stronger demand conditions, modestly improved market confidence and new client wins. However, export sales continued to decline, reflecting ongoing weakness in international demand.
The increase in workloads resulted in a slight rise in backlogged orders for the first time in five months, prompting businesses to expand staffing levels. Job creation accelerated to its strongest pace since April and was reported across both monitored sectors.
S&P Global also reported an easing in cost pressures during July. Input cost inflation slowed to its weakest level since February, although businesses continued to report higher spending on fuel, oil, raw materials and wages.
Manufacturing firms raised selling prices at a slower pace than in June, while service providers increased charges more strongly in response to improving demand. Overall, the gap between input cost inflation and output price inflation narrowed, providing greater scope for businesses to protect profit margins.
Looking ahead, business confidence improved only marginally from June’s more than two-and-a-half-year low and remained subdued, with firms continuing to cite uncertainty over future conditions.
Eleanor Dennison, economist at S&P Global Market Intelligence, said the latest results indicated that business conditions were moving in a more positive direction despite ongoing challenges.
“The latest set of ‘flash’ PMI data will provide some comfort that things are moving in the right direction for Australian businesses. Demand has shown signs of recovery, with new orders rising for the first time in five months. July data showed the private sector to be boosted by domestic demand given a deeper fall in sales to international customers,” Dennison said.
She noted that while services remained the main driver of output growth, manufacturing showed increasing signs of improvement.
“Output maintained its trend of expansion, but unlike that of new orders which was broad-based by sector, growth in activity was solely supported by the services economy. The manufacturing sector did show greater signs of stabilisation, however,” she said.
Dennison added that easing cost pressures had provided further encouragement for businesses.
“There was more positive news with respect to prices, with cost pressures continuing to ease off. More stability on the demand front also encouraged firms to more actively protect their margins.”
Despite the improvement, she said businesses remained cautious about the outlook.
“However, as we move further into the second half of the year, the outlook remains somewhat clouded with uncertainty. Businesses are certainly expressing some caution in their projections for the coming year.”
