Australia’s manufacturing sector started 2026 with stronger growth momentum, supported by rising orders, hiring, and improved confidence.

Summary:

• Australia’s manufacturing sector expanded at a faster pace in January, marking a third consecutive month above the growth threshold.

• New orders strengthened sharply, including the first rise in export demand in five months, lifting production momentum.

• Employment growth accelerated to its strongest pace since early 2023 as firms responded to rising workloads.

• Supply-chain frictions persisted, contributing to higher input costs and renewed selling price inflation.

• Business confidence improved to its highest level in nearly four years, supported by a more optimistic demand outlook.

Australia’s manufacturing sector entered 2026 on firmer footing, with January PMI data pointing to a clear acceleration in activity and improving demand conditions. The latest survey results indicate that growth momentum has broadened across output, orders, employment, and purchasing, reinforcing signs that the sector is emerging from a prolonged period of subdued conditions.

The headline manufacturing PMI rose further above the 50 threshold in January, signalling a third consecutive month of expansion and the fastest pace of improvement in five months. Output growth strengthened as manufacturers reported a solid uplift in new business inflows, supported by both domestic demand and a renewed contribution from overseas markets. Notably, export orders expanded for the first time since late winter, suggesting external demand is beginning to stabilise after a prolonged lull.

Stronger order books prompted firms to lift production schedules and expand capacity. Employment levels rose at the fastest pace in almost three years, reflecting both higher current workloads and improved confidence in future demand. The increase in staffing helped manufacturers reduce outstanding work, easing some operational pressures even as activity picked up.

Purchasing activity also increased for a third straight month, broadly tracking the improvement in new orders. However, supply-side challenges remain a constraint. Manufacturers continued to report transport bottlenecks, port congestion, and material shortages, which led to further deterioration in supplier delivery times. While the pace of delays eased slightly, logistical disruptions contributed to slower inbound shipments and a further drawdown in input inventories. At the same time, delays to outbound deliveries resulted in an accumulation of finished goods stocks.

Cost pressures intensified at the start of the year. Higher raw material prices and ongoing supply constraints drove the fastest rise in input costs in nine months. In response, manufacturers passed some of these increases through to customers, lifting selling prices again in January. That said, both input and output price inflation remained below long-run survey averages, suggesting cost pressures, while rising, are not yet excessive.

Encouragingly, sentiment across the manufacturing sector improved markedly. Firms reported their strongest confidence in nearly four years, underpinned by expectations of firmer economic growth, improving market conditions, and planned business investment. Forward-looking indicators, including new orders and future output expectations, point to continued expansion in the months ahead, although supply constraints and inflation dynamics remain key risks to monitor.

This article was written by Eamonn Sheridan at investinglive.com.