RTTNews - An index measuring manufacturing activity in Australia contracted at a slower pace for the third consecutive month in July, and was at its highest level since September 2008, the latest survey from the Australian Industry Group and PricewaterhouseCoppers said Monday.

The performance of manufacturing index climbed to a seasonally adjusted 44.5 in July from 38.4 in June, the highest reading in 10 months. Further, the improvement in the reading mirrors the trend in global manufacturing since early 2009, with the global PMI standing at 46.9 in June, the AiG said.

However, the index continued to remain below the threshold reading of 50 that separates expansion from contraction. A reading above 50 indicates expansion, while a reading below 50 signals a contraction.

During the month, the production index moved up by 4.9 points to 42.8, its highest level in 10 months. New orders also saw an improvement, with the index climbing 11.3 points to 47.9, its highest reading in 14 months. Capacity utilization picked up marginally to 67.9% in July from 67.4% in the preceding month.

The rate of contraction in employment eased for the third consecutive month, with the index rising 2.3 points to 41.3, but remained in contraction for the 19th consecutive month. Inventory levels were close to being stable in July, with the sub index increasing 9.9 points to 49.4.

Further, the rate of contraction in the suppliers delivery index slowed further, as the index rose 0.3 points to 41.6. At the same time, the input price index also rose marginally by 2 points to 54.1. The average selling prices improved by 0.4 points to 42, but remained in contraction for the fourth consecutive month.

Commenting on the latest data, Heather Ridout, Chief Executive of the AiG said, It is clear that the manufacturing performance in Australia has been deeply influenced by fiscal and monetary stimulus and inventory rundowns. Looking beyond the monthly figures, the big question is whether these improvements will be sustained once these stimulatory forces have abated.

Graeme Billings, PricewaterhouseCoopers' Global Leader of Industrial Manufacturing, also agreed that sustainability of the recovery was the issue.

While the early signs of nascent recovery that have been emerging from recent Australian PMI results is encouraging, market conditions facing manufacturers will continue to squeeze profitability for some time, Billings pointed out.

An eye for the longer-term remains important, particularly if the recovery becomes entrenched. Issues such as the retention of skilled workers, focus on new products and services and building of cost effective supply chains will quickly resume importance as firms' markets recover, the global leader added.

Meanwhile, a separate report released Monday by the Australia and New Zealand Bank or the ANZ showed that total job advertisements in Australia dropped 1.7% month-on-month in July, much slower than a 6.7% drop in June, but marked the 15th consecutive month of decline. Annually, job advertisements were down 51.9% in July.

Commenting on the data, Warren Hogan, the ANZ Head of Australian Economics said that with the trend in pace of decline in job ads having eased for the past five months, there were tentative signs that job ads may soon stabilize and that businesses may stop cutting back on hiring intentions.

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