Australia’s manufacturing sector showed tentative signs of recovery in July, with output and new orders returning to growth and employment rising at the fastest pace since January, according to the latest S&P Global Australia Manufacturing PMI.
However, the recent report noted that manufacturers continued to face elevated input costs and supply-chain disruptions linked to the war in the Middle East.
The seasonally adjusted S&P Global Australia Manufacturing Purchasing Managers’ Index (PMI) rose to 52.0 in July from 51.5 in June, remaining above the neutral 50.0 mark for the fourth consecutive month.
S&P Global said the latest reading indicated a modest improvement in manufacturing conditions and the strongest overall sector performance since January.
The improvement was supported by renewed growth in both production and new orders. Manufacturing output increased for the first time in six months, while new orders expanded for the first time since February.
S&P Global noted that growth in both areas remained only marginal as demand stayed subdued and inflationary pressures persisted.
Despite the improvement in domestic demand, new export orders declined again after a slight increase in June, with manufacturers citing rising prices and stronger competition for new business.
Manufacturers continued to report significant cost pressures during the month, particularly higher fuel and shipping expenses associated with the conflict in the Middle East. Although input cost inflation eased to its lowest level since February, around 40 per cent of survey respondents still reported higher costs in July. Output price inflation also moderated but remained well above levels recorded before the conflict began.
Supply chains also remained under pressure, with manufacturers reporting further lengthening supplier delivery times, often linked to delays in sea freight. While vendor performance continued to deteriorate, the extent of delays was the least severe in five months.
Businesses responded by increasing input inventories for a second consecutive month, supported by the first rise in purchasing activity in three months, as firms sought to manage the risks of rising costs and ongoing supply disruption.
Employment continued to strengthen, with manufacturers expanding staffing levels for the third straight month. S&P Global said the pace of hiring was the fastest since January, although some firms indicated that new workers had been hired on a temporary basis.
At the same time, outstanding business declined for the fifteenth consecutive month as firms kept pace with workloads, while stocks of finished goods also fell modestly.
Manufacturers were more optimistic about production over the coming 12 months following the return to growth in new orders. Confidence improved for a third successive month, supported in part by planned capacity expansions, although sentiment remained below levels seen before the outbreak of the war in the Middle East.
Commenting on the results, Andrew Harker, Economics Director at S&P Global Market Intelligence, said the latest data suggested the sector was beginning to recover from recent disruptions but warned that the outlook remained uncertain.
“Renewed rises in output and new orders during July provide some reassurance that the Australian manufacturing sector is recuperating from the downturn caused by the outbreak of war in the Middle East,” Harker said.
“For now, the recovery is only tentative, however, with only marginal growth recorded amid ongoing price and supply pressures.”
He added that risks remained elevated given continuing geopolitical uncertainty.
“Some deterioration in the situation in the Middle East means that the forward path is highly uncertain, with the possibility that the nascent recovery in the manufacturing sector may prove fleeting should inflationary pressures in particular start to strengthen again in the months ahead,” Harker said.
