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Manufacturing activity rises but growth slows

Manufacturing activity rose in Western Australia, New South Wales and Victoria throughout October, representing a third consecutive month for rises in the industry, according to the Australian Industry Group – PricewaterhouseCoopers Australian Performance of Manufacturing Index (Australian PMI).

Though the October PMI didn’t rise as quickly as that of August and September, growth in new orders and higher production saw “a substantial lift”, which is promising news for manufacturing and its associated industries.

The transport equipment, basic metal products and construction materials, recorded the most significant rises in activity in October, while the miscellaneous manufacturers sector saw a more modest increase, the report said.

However, activity fell moderately in the wood, wood products and furniture; machinery and equipment; and chemicals, petroleum and coal products sectors.

Activity fell solidly in the food and beverages, paper, printing and publishing sectors following rises in recent months. Activity was stable in the fabricated metal products sector.

“The recovery in manufacturing activity remains tentative, with exports still soft, policy stimulus easing and unemployment expected to temper consumer demand,” said Ai Group chief executive, Heather Ridout.

According to Ridout, though the October PMI rise is positive, the fact that it is not accelerating as fast as the previous two months is cause for concern.

“The high exchange rate is adding to the pressures on manufacturers who export or compete with imports and will ease pressure on prices. In this regard, the high dollar is reducing the need for a significant tightening of monetary policy,” she said.

“While the lift in manufacturing activity over the past three months and rising new orders in particular are welcome, growth is not accelerating and there remains a considerable way to go before we recover the ground lost over the past year.

“A period of sustained improvement in new orders and production will be needed to reverse the continuing fall in manufacturing employment.”

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