Activity in the manufacturing sector expanded in July, entering its third quarter of growth, due to stronger levels of production, new orders and deliveries, a survey says.
The Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) rose 1.5 points to 54.4 points in July, its seventh straight month of growth.
Readings above 50 indicate expansion.
The index found transport equipment, fabricated metals, basic metals and machinery and equipment sub-sectors benefited from stronger demand in the mining and infrastructure sectors in the month.
Consumer-related sectors also gained ground.
But the high exchange rate continued to affect manufacturers with exports falling in the month.
Australian Industry Group chief executive Heather Ridout said the recovery in manufacturing continued in July despite the waning impacts of fiscal stimulus and above-normal business interest rates.
"Private sector demand is slowly re-emerging as a source of growth," Ms Ridout said.
"While Australia remains the stand-out economy globally, the environment is also patchy and volatile and the world economy faces renewed uncertainty."
She said manufacturers would be looking for government policies that would help secure a full recovery in the sector.
"Interest rates and fiscal policy need to be set to support further expansion," Mrs Ridout said.
PricewaterhouseCoopers Global Head of Industrial Manufacturing Graeme Billings said manufacturers were continuing to regain lost ground, but they needed to continue to invest, innovate and upgrade the skills of their workforces.
"The sector faces important underlying challenges from international competition and the strength of the domestic currency due to the expected continued strength of commodity prices," he said.
"These challenges call for a combination of long-term business strategies and supportive policy settings."
The survey also showed the improvement in full-time employment growth over recent months could have helped consumer-related sub-sectors, such as textiles, bounce back in July.
After three months of growth, the employment sub-index fell slightly to 47.7 and manufactured exports continued to be constrained by the higher exchange rate.
The survey manufacturing showed growth was strongest in NSW, Queensland, South Australia and Tasmania.
AAP