Australia’s manufacturing sector remained in expansion in February, but growth lost momentum as new orders slowed and output edged into contraction, according to the latest Purchasing Managers’ Index (PMI) data released by S&P Global.
S&P Global reported that the seasonally adjusted Australia Manufacturing PMI registered 51.0 in February, down from 52.3 in January.
The reading marked the fourth consecutive month above the 50.0 no-change threshold, signalling improving operating conditions overall, but represented the weakest rate of growth in the current expansion sequence.
According to S&P Global, incoming new orders increased for a fourth straight month, supported by improved underlying demand, marketing efforts and new contract wins.
However, the data provider said the pace of expansion eased compared with the start of the year and was only marginal overall, partly reflecting softer momentum in foreign demand.
S&P Global’s survey data indicated that the weaker rise in new business contributed to a mild reduction in manufacturing output in February, the first decline in four months. Some surveyed firms also cited machinery maintenance and upgrades as factors affecting production levels.
Employment growth moderated in line with softer new order growth, S&P Global said, noting that hiring rose at a slower and only marginal pace amid a lack of capacity pressures.
Outstanding business fell again during the month, while business confidence weakened to its lowest level since June last year. Despite the decline, S&P Global said overall sentiment remained positive, with firms expressing expectations that expansion plans would support sales growth in the year ahead.
The PMI data showed manufacturers adopted a more cautious approach to inventories in February. S&P Global reported declines in both pre- and post-production stocks, with finished goods inventories falling at the fastest rate in more than five years. Purchasing activity continued to rise, however, partly due to concerns over delays in input deliveries.
Supplier delivery times lengthened at one of the fastest rates seen over the past year, which S&P Global attributed to raw material shortages and congestion.
Survey respondents frequently cited higher metals costs, contributing to further increases in input prices.
Manufacturers subsequently raised selling prices, although S&P Global noted that both input cost and output price inflation eased slightly compared with the start of the year and remained below their respective long-run averages.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, said the latest data reflected a clear slowdown in momentum.
“After a strong start to the year, growth momentum in the manufacturing sector had clearly been lost in February according to the latest PMI data,” Pan said in the release.
She said tighter monetary policy in Australia and external uncertainties had weighed on both demand growth and optimism among goods producers.
“While forward-looking PMI indicators continued to point to the likelihood of output growth in the coming months, the rate of expansion may be modest,” Pan said.
Pan added that supply-side challenges remained evident in the February survey results.
“Supply conditions notably worsened at a more pronounced degree in the manufacturing sector in February. That said, it was positive to see inflation rates falling slightly for goods producers, breaking from the trend of intensifying price pressures at the start of the year,” she said.
