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Manufacturing slowly recovers in June

The food and beverage sector has driven manufacturing activity in June

Australian manufacturing activity has expanded for the first time since February, mainly led by new orders in the food and beverages industry as trading restrictions ease.

The Australian Industry Group Performance of Manufacturing Index jumped 9.9 points to 51.5 in June, recovering from the depths in April and May when restrictions to check the spread of coronavirus had been imposed.

A reading above 50 points indicates expansion with higher results reflecting a faster rate of expansion.

The result is the largest ever monthly rise and follows the largest ever monthly fall in April.

Despite the positive result, conditions haven't really turned buoyant, with five of the six manufacturing sectors contracting for the month.

Almost all of the improvement in June was concentrated in the large food and beverages sector, with new orders from food wholesale distributors as restrictions were gradually lifted on cafes and restaurants.

The machinery & equipment sector also enjoyed a spike in sales with end-of-financial year buyers taking advantage of the expanded instant asset write-off provisions.

However, the building materials, metals and chemicals sectors remained in contraction.

Manufacturers supplying locally-made metal products and building materials to the construction industry reported a sharp reduction in new orders.

Employment stabilised after the contractions of the previous two months, improving to 49.6.

Wage levels also levelled off, up 4.2 points to 49.8, after the fall recorded in May.

"We are still well short of a recovery even with the quantity of fiscal stimulus in the economy and the next couple of months will provide a critical test of how well the economy is positioned to cope with the withdrawal of stimulus currently scheduled for the end of September," Ai Group Chief Executive Innes Willox said.