Challenges in supply chain and labour issues has caused constraints in manufacturing expansion, according to the Ai Group.

The Australian Industry Group’s latest Australian Performance of Manufacturing Index (Australian PMI) found that even though the manufacturing sector grew in March, it lagged behind February as a result of these challenges.

The Australian PMI increased a further 2.5 points to 55.7 in March – the highest monthly result since July 2021, whith Ai Group saying readings above 50 points indicate expansion in activity, with higher results indicating a faster rate of expansion.

“The Australian manufacturing sector grew faster in March as manufacturers added new staff, lifted sales and continued to expand production (although at a slower pace than in February),” Ai Group chief executive Innes Willox said.

“Five of the six manufacturing sectors saw improved performance with businesses in machinery and equipment, building products and the diverse textiles, clothing, footwear, paper and printing group leading the way.

“The food and beverages sector, which is the largest area of Australian manufacturing was alone in seeing conditions deteriorate in March.

“Across manufacturing pressures from wages and input prices stepped up while selling prices growth saw manufacturers recover some cost increases in the market. There was an encouraging rise in new orders in March although with labour and input supply constraints growing, manufacturers will be stretched to fill orders in a timely way.”

Other key findings from the Australian PMI for March 2022 include:

• Production (down 1.2 points to 53.4) and inventories (down 2.4 points to 53.5) eased back slightly from more expansionary levels in February, while employment (up 9.9 points to 53.4), exports (up 15.7 points to 58.3) and sales (up 12.5 points to 63.9) all increased in March. An increase in the new orders index (up 5.2 points to 65.0) indicated further strong production can be expected in the coming months.
• Five of the six manufacturing sectors reported positive trading conditions during March, with buoyant conditions reported by manufacturers in machinery and equipment (up 3.3 points to 60.2), building materials (up 12.6 points to 61.0), and TCF, paper & printing products (up 6.7 points to 59.0). The large food and beverage sector remained in contraction (down 0.5 points to 46.9).
• The input prices index rose further in March (up 6.8 points to 82.4), indicating faster input price increases on average for manufacturers. Selling prices edged higher to record the index’s highest reading since 2008 (up 0.4 points to 72.0).
• The average wages index increased in March (up 1.7 points to 66.6) reaching its highest level since the recent peak in 2021.

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