Australia’s manufacturing sector continued its recovery in February, with the latest S&P Global Australia Manufacturing PMI reaching 50.4, the highest level in two years.
This marked the second consecutive month of improvement, driven by a rise in new orders for the first time since November 2022, supported by increased export demand.
“February’s Australian Manufacturing PMI data showed that business conditions in the goods-producing sector continued to improve,” said Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence.
“Forward-looking indicators, including a renewed rise in new orders and the highest future output reading seen in nearly three years, further provided positive signals for output growth in the coming months.”
Despite the rise in new orders, manufacturing output declined in February. Companies reported sufficient inventories of finished goods, which led to a continued depletion of post-production stock.
The reduction in backlogged orders indicated excess capacity, prompting firms to maintain a cautious approach to employment, resulting in a slight decline in staffing levels.
Additionally, purchasing activity remained weak, extending its decline to nearly two-and-a-half years, as firms held adequate stock levels.
“While current production fell in February, this is largely a reflection of continued excess capacity in the early stages of demand recovery,” Pan noted.
“This is likewise the reason for a marginal decline in employment levels and a sustained downturn in purchasing activity. It will be important to see further increases in new sales to help drive future output and employment growth in the goods-producing sector.”
Price pressures in the sector eased, with input cost inflation slowing due to a stronger Australian dollar. While higher raw material, energy, and shipping costs contributed to rising input prices, the overall rate of inflation weakened for the first time in three months.
Consequently, output price inflation also fell to its lowest level since November.
“The continuation of an easing inflation trend will be important to help support improvements in demand over the coming months,” Pan explained.
Looking ahead, business sentiment in the Australian manufacturing sector rose to its highest level since April 2022, though it remained below the long-run average.
Firms expressed optimism that better economic conditions, lower interest rates, and stronger marketing efforts could boost production in the next year.
Export orders saw their first increase in six months, growing at a faster rate than overall new orders.
Demand from key markets, including the United States, mainland China, Europe, New Zealand, and Southeast Asia, contributed to this upward trend.
However, supply shortages and shipping delays continued to impact delivery times, though the rate of extension was the softest since September 2023.
