By James Glynn
SYDNEY--Activity in Australia's manufacturing sectors could be entering a recovery phase, with firms reporting ongoing demand for labor, with cost pressures reaching their highest level for years.
The headline seasonally adjusted Judo Bank Australia manufacturing purchasing managers index rose to 49.7 in May, up from 49.6 in April. A reading above 50 indicates an expansion in manufacturing activity, while a reading below that indicates a contraction.
The sector's key activity indicators continued to improve through May, suggesting that the worst of the manufacturing slowdown may be over, said Matthew De Pasquale, economist at Judo Bank.
Although the manufacturing output index remained just below the neutral level in May, it has shown a steady increase for three consecutive months since its cyclical low point in February, he added.
New orders are also showing signs of improvement, while the sector appears more upbeat on hiring.
The manufacturing employment index surpassed the neutral 50.0 level in April for the first time in seven months, suggesting that manufacturers are no longer shedding labor, the data showed.
Still, price pressures remain concerning.
The input price index rose to 60.0, the highest level since November 2022, and the output price index, representing inflation of consumer prices, rose to its highest reading in over a year.
But despite the recovery in activity levels, the future output index, a proxy for business confidence, remains historically weak for the sector and has shown little improvement over the past six months, the data showed.
The PMI data in some ways reflects the broader economy amid signs that while the economy has slowed sharply due to historically high interest rates, inflation pressures remain a factor, forcing the Reserve Bank of Australia to warn in May that further policy tightening might be needed.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
06-02-24 1957ET
