Australia’s manufacturing sector recorded mixed conditions in August, with new orders growing at their fastest pace since January while production edged lower, according to the latest S&P Global Australia Manufacturing PMI.
The headline seasonally adjusted PMI was unchanged at 52.0, indicating a further modest improvement in overall manufacturing conditions during the month.
New orders increased for the second consecutive month, with the pace of growth accelerating to its strongest level since January. S&P Global said some manufacturers reported improving market conditions, while new export orders also returned to growth after a marginal decline in July.
The improvement in demand supported continued hiring across the manufacturing sector. Employment increased for the fourth consecutive month, with survey respondents citing a combination of contract workers to manage current workloads and longer-term hires associated with business expansion plans.
The increase in employment also contributed to a marked reduction in manufacturers’ backlogs of work, which fell by the largest extent in just over a year.
However, manufacturing production declined slightly in August, reversing the modest increase recorded in July. S&P Global said some firms continued to face muted demand, while others pointed to the impact of higher prices.
Input cost pressures also intensified, with higher freight and fuel costs widely reported. At the same time, output price inflation eased for the third consecutive month and reached its slowest pace since February.
Manufacturers also reduced input buying and purchasing stocks during the month, with some businesses reporting that existing inventories were sufficient to meet current workloads. Stocks of finished goods recorded their sharpest decline since March.
Supply-chain pressures remained a key challenge. Suppliers’ delivery times lengthened sharply again in August, slightly more than in July, with manufacturers reporting international shipping delays and some suppliers consolidating deliveries to manage higher freight costs.
Andrew Harker, Economics Director at S&P Global Market Intelligence, said the decline in production could prove temporary given the stronger flow of new orders.
“While it was disappointing to see a slight fall in manufacturing production during August, the solid and accelerated rise in new orders should mean that this proves to be a temporary blip rather than a more sustained downturn,” Harker said.
He added that the return to export growth had contributed to stronger confidence among manufacturers, despite continuing cost and supply-chain pressures linked to the war in the Middle East.
“While much uncertainty still remains, the building blocks of recovery are in place, and will hopefully be built upon in the months ahead,” Harker said.
