The rise to 52.0 signals a modest but genuine improvement in Australian manufacturing conditions, with production and new orders both returning to growth for the first time in several months, a mildly positive read for domestic industrial activity and employment data in the near term. However, the recovery remains fragile: input cost inflation, though easing, is still running well above pre-conflict levels, with 40% of firms reporting higher costs tied directly to Middle East-driven fuel and shipping expenses. That keeps upside risk in play for producer price inflation readings, which the RBA will be watching closely alongside any further escalation in the region. The renewed fall in export orders, driven by rising prices and competition, points to a currency and competitiveness headwind that could weigh on trade-exposed sectors even as domestic conditions improve. Overall, the data supports a cautiously constructive read on the industrial economy, but the explicit warning from S&P Global’s own economist that the recovery could prove fleeting if Middle East inflationary pressures reassert themselves should temper any strong directional conviction.
Earlier, the latest on Trump’s war:
- Reports of Iran firing cruise missile at US oil tanker, also UK Navy reports incident
- Trump claims Hormuz deal done, denuclearisation talks to start tomorrow
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Australian manufacturing is showing tentative signs of life, but the war in the Middle East still has its hand on the inflation dial.
Summary:
- The S&P Global Australia Manufacturing PMI rose to 52.0 in July from 51.5 in June, its fourth straight month above the 50.0 growth threshold and the strongest reading since January
- Output and new orders both returned to growth, with production rising for the first time in six months, though growth rates in both were only marginal
- Employment rose at its fastest pace since January, marking the third consecutive month of staffing expansion, though some hiring was temporary
- New export orders fell again amid rising prices and competition, reversing a slight rise seen the previous month
- Input price inflation eased to its lowest rate since February but remained sharp, with 40% of respondents reporting higher costs, largely tied to fuel and shipping linked to the Middle East conflict
- Backlogs of work fell for a fifteenth straight month, though at the slowest pace in six months, while firms rebuilt input stocks for a second consecutive month
Australia’s manufacturing sector returned to output growth in July for the first time in six months, according to the latest S&P Global survey, offering tentative signs of recovery even as firms continued to grapple with elevated costs and supply disruption tied to the war in the Middle East.
The headline seasonally adjusted S&P Global Australia Manufacturing Purchasing Managers’ Index rose to 52.0 in July, up from 51.5 in June, marking the fourth consecutive month above the 50.0 no-change threshold and the most pronounced improvement in the sector’s health since January. The gain was driven by renewed expansions in both output and new orders as the second half of the year began, with production growth recorded for the first time in six months on the back of the first increase in new orders since February. Growth in both measures was described as only marginal, reflecting still-muted demand and ongoing inflationary pressures.
Job creation was a bright spot, with manufacturers expanding staffing levels for a third consecutive month at the fastest pace since January, although some firms noted that new hires were only on a temporary basis. Backlogs of work decreased for a fifteenth straight month as firms kept on top of workloads, though the pace of depletion was the slowest in six months. Stocks of finished goods edged down modestly, while firms rebuilt input inventories for a second consecutive month, supported by a renewed rise in purchasing activity, the first in three months.
Price and supply pressures, while easing, remained a persistent drag on the sector. Input price inflation slowed markedly to its lowest rate since February, but costs still rose sharply, with 40% of respondents reporting an increase, driven chiefly by higher fuel and shipping costs linked to the Middle East conflict. Output price inflation also slowed, though only slightly, with charges continuing to rise at a much faster pace than before the outbreak of the war. Lead times on input deliveries lengthened again, with sea freight delays frequently cited, though the deterioration in vendor performance was the least pronounced in five months. New export orders fell once more, reversing a slight rise in June, as rising prices and competition for new work weighed on overseas demand.
Andrew Harker, Economics Director at S&P Global Market Intelligence, said the renewed rises in output and new orders provided some reassurance that the sector was recuperating from the downturn triggered by the outbreak of war in the Middle East, but cautioned that the recovery remained only tentative, with growth still marginal amid ongoing price and supply pressures. He added that further deterioration in the Middle East situation left the forward path highly uncertain, warning that the nascent recovery could prove fleeting should inflationary pressures begin to strengthen again in the months ahead. Manufacturers themselves appeared cautiously optimistic, with confidence in the 12-month production outlook improving alongside planned capacity expansions, which rose for a third straight month but remained some way below levels seen before the conflict began.
This article was written by Eamonn Sheridan at investinglive.com.