Dollar’s resurgence bad news for manufacturing

The Australian dollar’s resurgence is threatening to put a stop to recovery in sectors such as manufacturing and tourism, according to some economists.

The drop from mining boom-time highs – it peaked at over $US 1.10 in 2011 – has brought relief to these industries. The easing has, for example, been cited repeatedly in the 13 straight months of 50-plus PMI results, which came to an end at the beginning of this month.

However, the dollar traded as high as $US 0.7675 last week, after being under $US 0.70 in March, and some economic advisers – such as BIS Shrapnel – have raised fears that this could slow economic growth, reports The Courier-Mail.

“The lower dollar has not only given a boost to service industries but manufacturing, which has had a tough 10 to 15 years,” Bank of Queensland economist Peter Munckton told The Courier-Mail.

“But the more the currency moves into the high US70¢, that competitive boost becomes tougher to achieve.”

Australian manufacturing’s hot streak continues

The country’s manufacturing industry is enjoying its longest period of expansion since 2006, according to the Australian Industry Group’s PMI result, released this morning.

Following January’s overall PMI of 51.5, today’s figures showed a result of 53.5, which is also the biggest monthly expansion since July 2010.

Any result above 50 indicates expansion. The further above 50, the greater the growth result. February’s overall result represented the eight straight months of growth.

The Ai Group’s chief executive, Innes Willox, said that the sector had enjoyed a running start to the year, and confidence was building in the expectation that the Australian dollar would stay around its current level.

“Production, sales, new orders and exports all lifted in February to consolidate the gains made by manufacturers over the second half of 2015,” said Willox in a statement.

“There is little doubt that greater competitiveness in export markets and in the domestic market due to the lower dollar is central to this turnaround.”

The result was overall positive, but there were some areas of concern, said Willox.

“Important sub-sectors, including the metal products sub-sector, remain in contraction as does the large machinery & equipment sub-sector despite improving trends in recent months,” he added.

“Many businesses are being adversely impacted by the higher costs of imported inputs associated with the lower dollar.”

Notable activity sub-indices included production’s result of 60.1 (its best result since 2004), new orders stayed positive at 52.4 (down from 52.8) and sales returning to expansion (53.0 points).

Food and grocery manufacturing booming in western Sydney

The food and grocery sector in western Sydney is “booming” according to research released today.

The Daily Telegraph reports that an Ernst & Young report for the Australian Food and Grocery Council shows that the sector represents 33 per cent of manufacturing jobs in the region. The report studied 14 Local Government Areas and found manufacturing employed 103,000 in western Sydney.

 “Western Sydney is Australia’s largest manufacturing region with manufacturing companies generating about $13.5 billion annually,” Gary Dawson, chief executive of the AFGC, told the Telegraph.

“This research confirms just how important the food and grocery manufacturing sector is for future local jobs and growth.”

The food and beverage sector in Australia is growing strongly, and has been assisted by the depreciation of the Australian dollar (which was trading at 73.37 US cents at 8:30 am AEDT).

In October, the AFGC released its annual State of The Industry report, which found a “spectacular” surge in export trade and an additional 3,183 employees hired during the year.

Food and beverage leads the way in January’s improved PMI result

The first month of the year has seen a boost for Australia’s manufacturing sector, helped by the dollar’s depreciation, but it remains in contraction overall.

The Australian Industry Group PMI recorded an overall improvement of 2.1 points on December’s result to be at 49.0 in January.

Any result over 50 indicates growth, and below it contraction.

Three of seven sub-indices were above 50: exports were up 3.0 points to 54.0, supplier deliveries up 4.3 to 57.9, and stock levels 6.0 to 41.4.

By sub-sector, three of eight categories were in growth, with Food, Beverage & Tobacco leading the way (up 2.5 points to 62.9. Textiles, Clothing and Furniture, and Non-Metallic Mineral Products were both also in expansion.

The Ai Group’s chief executive Innes Willox said there were signs that the dollar, which fell as low as US 77.22 cents last week, would provide a “major fillip” to the industry.

However, it was a mixed blessing overall, and the environment remained challenging.

“This adverse impact of the lower dollar, together with the loss of sales from the sharp drop in mining investment, the wind down of auto assembly in Australia and generally weak business investment indicate that the headwinds facing the sector will continue well into 2015,” he said.

Image: https://www.ppshutters.com.au

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