S&P Global: January PMI signals marginal recovery in Australia’s manufacturing sector

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Australia’s manufacturing sector experienced its first improvement in over a year in January, with the S&P Global Australia Manufacturing PMI rising to 50.2, signalling a return to production growth, albeit marginal.

The improvement was driven by higher readings across several key indicators, including output, new orders, employment, and stocks of purchases, S&P said in a media release.  

Manufacturing production began to recover after over two years of decline, though the growth rate remained marginal. The rate of new order contraction eased, falling at its softest pace in nearly two years. 

“Manufacturing production returned to growth after falling for over two years as new business fell at a noticeably slower rate,” said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence. 

“Firms were further willing to raise staffing levels, adding to signs of a turnaround in the goods-producing sector.”

Although employment levels rose as businesses increased staffing to manage workloads, purchasing activity continued to shrink. 

The decline in new orders, along with reduced client spending, contributed to lower stocks of purchases. 

Firms also reported a decline in inventories, partly due to decreased demand and increased outbound shipments of goods. 

Despite this, lead times for the delivery of inputs to manufacturers lengthened at the slowest pace in 16 months, reflecting easing shipping congestion.

Price pressures intensified for Australian manufacturers in January. The rate of input cost inflation reached its highest level since November 2022. 

Manufacturers attributed the rise in costs to factors such as increasing input prices and a softening domestic currency. 

“Rising price pressures will also need to be monitored. Although selling price inflation remained below average, further rise in charges should not be ruled out amid intensifying cost pressures for manufacturers,” Pan warned. As a result, selling prices rose at the fastest pace in eight months, as companies passed on some of their increased costs to clients.

Despite the improvements in several areas, export orders continued to decline at a solid rate, affected by subdued global business conditions and ongoing trade uncertainties. 

Business optimism among manufacturers also dipped slightly, remaining below average as firms expressed concerns about both domestic and external market conditions. 

“At the root of the issue remains subdued demand, which will need to improve to inspire better confidence among manufacturers,” Pan added.