Australia Manufacturing Activity Jumps in February

Australian manufacturing activity expanded sharply in February, driven by a strong turnaround in foodstuffs and faster growth in the coal and petroleum sectors, a private survey reported on Thursday.

The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) rose a seasonally adjusted 6.4 points to 57.7, its highest since 2002 and well above the 50 threshold that separates growth from contraction.

The strongest growth came in the food and beverage sectors, which reversed January declines, and the chemical, petroleum and coal sectors, which accelerated production amid an ongoing commodities boom fuelled by demand from China.

But Ai Group Chief Executive Heather Ridout cautioned that business conditions remained tough, with exports flat despite seven months of gradual improvement.

"A broadly-based and sustained upturn in domestic manufacturing is unlikely before there is a significant lift in consumer spending and residential construction activity," Ridout said. "As long as interest rate uncertainty continues to curtail this, and we suspect it will, manufacturing conditions are likely to remain volatile."

Australia's Reserve Bank Governor Glenn Stevens last month warned lawmakers the next move in official interest rates was more likely to be up than down, following on from three hikes last year lifting cash rates to 6.25%. There have been four rises since the last election in 2004.

The Ai survey said manufacturing activity expanded in 10 of the 12 sectors, up from six in January. New orders increased 8.3 points to 59.0, with the strongest growth coming in
transport, construction materials and textiles.

The employment index lifted above the 50 barrier by 7.0 points to 55.6, with eight sectors reporting jobs growth.