Notable growth: Australia’s manufacturing sector expanding

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Recent report from the Australian Industry Group indicated a considerable growth in Australia’s manufacturing sector in September 2013 compared to services and construction sectors. Unlike the two other sectors that have been plagued by contraction in the last 20 and 40 months, respectively, the manufacturing industry showed sign of life by improving 5.3 points from the previous month. Here are the other details of the AI Group report:

Australia's manufacturing sector is rising again
Essential numbers

Since June 2011, Australia’s performance manufacturing index (PMI) has never climbed above 50, the point that indicates expansion. But in September 2013, 51.7 registered, showing that the sector performed 5.3 points better than the 46.4 in August.

Some sub-indices also showed improved vitality: new orders yielded 53.6 from 44.2; exports jumped to 50.5 from 50.2; and supplier deliveries climbed to 55.7 from 47.1.

On the contrary, export numbers remain sluggish, with this month yielding only 31.4 with only a 3.1 improvement from last month. Production and employment sub-indices were also slow, registering 49.9 and 48.5, respectively, although both increased by 2.8 and 2.2 points.

Australian economic growth

The above-50 performance of three activities—new orders, exports, and supplier deliveries—indicates that Australian manufacturers are generally producing more for the local and global markets. According to the report, the strongest expansions were in the food, beverages and tobacco sub-sector and the petroleum, coal, chemicals and rubber products sub-sector; their indices jumped to 60.1 and 59.4, respectively, for the month of September.

Survey participants attribute three factors to the expansion of the manufacturing sector: lower Australian dollar, lower interest rates, and the recent Federal election. However, Albert Edwards of Societe Generale, made some less appealing comments about the current PMI: “Make no mistake—the Australian tide is going to be heading way out as China is about to have . . . its day of reckoning!” He added that even before China suffers a Minsky moment, Western Australia’s commodity-dependent population would have fallen into recession.

About the index

The AI Group conducts seasonal and monthly surveys with different representative companies in the manufacturing sector in order to determine the current overall state of the industry. The key indicators in the survey include sales and activity, suppliers deliveries, employment, and new orders, among others. Participants are required to answer questions with “up” or “down” to indicate increase or decrease in each indicator in their business. Survey results are compiled and released to show the recent performance of the manufacturing industry.

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