The solid recovery in manufacturing output is positive news for this big employing sector and it reflects the confidence building across the economy," Ai Group Chief Executive, Innes Willox said on June 6.
"This industrial growth has come despite the winding down in auto production over the past year. The industry's performance reflects the changing face of manufacturing in Australia and especially the strengthening focus on innovation, exports and advanced manufacturing technologies," Willox said.
Manufacturing output recovered by a further 2.4% in the March quarter of 2018, to be 6.4% higher than one year earlier, according to ABS National Accounts data released today (in seasonally adjusted and inflation adjusted terms). Manufacturing contributed 0.1 percentage points to total GDP growth of 1.0% in the quarter.
Manufacturing output has now grown in three of the last four quarters. Q1 2018 was the fourth consecutive quarter in which these ABS data have shown annual growth in manufacturing output volumes – the longest such run in expansion in manufacturing since 2011. The last time that manufacturing output expanded (in annual growth terms) for longer than 4 quarters was in 2006-07, prior to the long disruptions of the GFC. This latest recovery has taken manufacturing output volumes in Q1 2018 back to the same level as 2014 (just under $26bn). It remains well below the all-time peak of $30bn in 2008.
This nascent recovery in manufacturing was also evident in the ABS’ industry sales data released earlier this week, which showed that manufacturing sales grew by 2.4% q/q and 7.8% p.a. in March 2018 (nominal sales). Most positively, this represented a real sales increase and not just a price rise: in (inflation-adjusted) terms, manufacturing sale volumes grew by 1.6% q/q and 4.9% p.a. This was the strongest real sales growth since the GFC and up for a third consecutive quarter (for the first time since the GFC).
This very welcome recovery in manufacturing activity and output has been evident in Ai Group’s Australian Performance of Manufacturing Index (Australian PMI®) over an extended period. As of May 2018, it has shown expansion in 20 consecutive months, the longest run of continuous growth since 2005.
Both the ABS value-added output data and the Ai Group Australian PMI® confirm that this recovery in 2017 and 2018 has been especially strong in the food and beverages sector, which accounts for 27.6% of manufacturing output volumes and grew by 9.6% over the year to March 2018. Employment in this sector grew by 13,400 to 246,000 in the year to Feb 2018 (up 5.5%). This successful sector is benefiting from excellent export growth (supported by the lower dollar and growing appetites in key Asian markets) and solid sales within Australia.
A strong recovery has also been evident in the ABS’ ‘other manufacturing’ category, in which output grew by 6.6 q/q and 15.2% p.a. in March 2018. This segment accounts for 21.8% of manufacturing output and includes a diverse range of product categories, from building materials (currently in strong demand due to Australia’s building boom), paper and printing products (e.g. packaging for the growing food and groceries segments), furniture and furnishings, and textiles clothing and footwear.
Weaker growth and recovery rates have been evident for chemicals, metals and machinery and equipment over the year to March 2018 in the ABS output data and in the Ai Group Australian PMI®. These sectors have been more directly affected by the reduction in activity resulting from the end of automotive assembly activity in Australia during 2017. Their focus is now on other types of transport and engineering-related manufacturing, advanced manufacturing and specialist equipment, all of which are continuing to gain traction.
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