The final Australian S&P Global Manufacturing PMI for May 2025 is 51.0. This is a drop from the preliminary reading of 51.7 and April’s 51.7. However, the sector is still growing.

Production And New Orders

In May, production fell for the first time in three months, and new orders increased at a slower pace. Stocks of purchases also went down as buying slowed down. On the bright side, some indicators suggest that output may grow in the coming months, thanks to rising export orders and better business confidence. Employment continued to rise, with firms actively hiring for open positions. Inflation pressures eased, marking the lowest costs in over a year, which may soon help boost demand. The report hinted that the recent slowdown might be linked to the election, making it potentially temporary. The May PMI reading of 51.0 keeps the manufacturing sector just above the line that divides growth from decline. Although it’s lower than the preliminary estimate and last month’s figure, it still indicates a slight softening in activity. However, the index remains above 50, which shows the sector still has some resilience, even if it’s a bit less than before. The drop in output, the first since February, shows a slowdown in production momentum. While it’s not drastic, this shift after previous gains suggests hesitation among manufacturers. This could be due to easing order backlogs or clients being cautious. Purchasing managers cut back on buying inputs, leading to a decline in stocks for the first time in several months. Demand seems less urgent, even though firms are optimistic about the future.

Export Orders And Business Confidence

The rise in export orders is a positive sign. Focusing on foreign demand may help maintain activity levels if local conditions remain weak for a while. Business confidence has increased, according to survey results, but history suggests this doesn’t always lead to immediate volume gains; it often takes time to show in actual output. Labour conditions are tightening. Continued hiring indicates that firms expect strong enough demand to justify keeping or expanding their capacity. This hiring trend, alongside reduced cost inflation—the lowest in over a year—may create an environment where profit margins start to stabilize or improve. Lower input costs can also lead to better inventory management and price competition without hurting profits right away. There’s also a political aspect to this data. National elections can influence economic activity, partly due to uncertainty and partly due to expectations for new policies. It’s likely that some clients, especially in sectors that require heavy investment, postponed orders temporarily. Once policy clarity returns, we usually see those delayed decisions come back into play. Given these changes, we should expect mixed data in the near future. Past instances of stalled output growth without a broader decline have led to tighter implied volatility in manufacturing-driven markets. This suggests potential opportunities for strategies focused on stable conditions or lower-risk derivatives. Furthermore, employment growth combined with easing input costs may create a solid foundation for future price expectations linked to industrial production. We shouldn’t overlook export strength. While it may not immediately affect overall economic measurements, it is beneficial for products related to producer sentiment or shipping volumes. Changes in purchasing habits and stock reductions may result in a slower increase in forward indicators, indicating that mid-term derivative structures could benefit from later entry points. Lastly, decreasing inflation pressures, especially if they continue over time, might change yield curve expectations. If we continue to see this alongside stable hiring, fixed income derivatives related to products may need adjustments. Scenarios should be revisited to put greater emphasis on sustained growth in a disinflationary setting. Create your live VT Markets account and start trading now.

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