Manufacturing up, but exports weak
By Jacob Saulwick | smh.com.au | 03 January
Image: James Davies
The local manufacturing industry is in its healthiest state for years, even if the dollar's high value is playing havoc with exports.
A survey commissioned by the Australian Industry Group has shown new orders are flooding in for manufacturers. And despite a slump in exports, manufacturers started to take on staff at the end of last year.
Activity was strongest in the food and beverage sector - after wet weather gave some relief to agricultural production - as well as the chemicals, construction and basic metals sectors.
Stronger car sales in December also gave the industry a boost.
The chief executive of the Australian Industry Group, Heather Ridout, credited demand flowing out of the local economy for the strength of the manufacturing sector. "Export growth remains weak, however, reflecting the high exchange rate," Ms Ridout said.
The Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing index rose 3.8 points to 57.6 in December.
This was the highest reading since 2003, and puts the index well above 50, the level separating growth from contraction in the industry.
But the sub-index measuring exports slumped 5.8 points to 50.9 in December, falling in with a longer-term decline.
Even though manufacturing improved on the index's measure last year, the export gauge fell by almost 20 per cent.
The advance of the Australian dollar means that locally made goods become more expensive in world markets while imports become cheaper.
The dollar gained about half a cent yesterday, rising as high as US88.05c.
But short-term money market rates eased, with the 90-day bank bill rate dropping to 7.18 per cent yesterday, 32 points lower than its December high of 7.51 per cent.
The reduction in money market rates means businesses can access cheaper funding, so banks are under less pressure to lift variable mortgage rates.
A CommSec economist, Martin Arnold, said the performance of manufacturing index was one of the most timely economic indicators released in Australia.
"[It is] useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key 'forward looking' components are orders and employment," Mr Arnold said.
First published by Smh.com.au on January 03 2008
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