Australia’s manufacturing PMI fell to 50.7 in May as new orders hit a seven-month low

Australia’s global manufacturing PMI fell to 50.7 in May from 51.3 in April, with new orders falling at the steepest pace since October and selling price inflation reaching a 45-month high.

summary:

• The S&P Global Australia Manufacturing PMI fell to 50.7 in May from 51.3 in April, remaining above the 50.0 threshold unchanged, according to S&P Global.
• New orders fell for the third straight month in May and at the steepest pace since October 2025, as participants pointed to squeezed customer budgets and weak demand driven by sharp price rises, according to S&P Global.
• Selling price inflation reached a 45-month high in May, while input cost inflation was the second fastest rate in nearly four years, with fuel and transportation costs noted broadly higher, according to S&P Global.
• Suppliers’ delivery times were lengthened to the second-largest degree in 46 months, driven by higher fuel costs and widespread international shipping delays linked to the Middle East war, according to S&P Global.
• Manufacturing output fell for a fourth straight month in May, albeit at a weaker pace than in April, according to S&P Global.
• Employment rose marginally in May, the first rise in three months, although Andrew Harker, director of global economics at Standard & Poor’s, warned that gains were unlikely to continue if new orders continued to decline.
• S&P Global warned that based on historical PMI relationships, official data could show a decline in manufacturing output during the second quarter unless conditions improve significantly in June, according to S&P Global.

Australia’s manufacturing sector remained above the expansion threshold in May but only narrowly, and details of the latest S&P Global survey paint a far more turbulent picture than the headline reading suggests, with new orders falling at their fastest pace in seven months and cost pressures rising to multi-year highs due to the ongoing war in the Middle East.

• S&P Global Australia Manufacturing PMI, May 2026: 50.7

The headline PMI was significantly affected by the sharp extension in supplier delivery times, which is inverted in the PMI calculation on the basis that longer delivery times typically reflect capacity pressure resulting from demand. In the case of May, the prolongation reflected war-related supply disruptions and shipping delays rather than any underlying strength in demand, meaning the real operating conditions facing Australian manufacturers were much weaker than the 50.7 reading would indicate.

New orders contracted for the third month in a row in May and at the largest pace since October 2025. Companies attributed this decline to customer budgets that were squeezed due to the continued rise in prices and widespread weak demand. New export orders also fell at a strong pace, with many participants citing weakness in Asian markets as a specific impediment. Weak demand affected production, which fell for the fourth month in a row, despite the slower pace of contraction compared to April.

Cost pressures remain a prevalent theme. Input cost inflation was the second fastest rate of inflation recorded in nearly four years, with rising fuel prices cited in the survey as the main driver. Transportation costs also rose sharply, reflecting war-related disruption to international shipping routes. Selling price inflation accelerated further and reached a 45-month high, as manufacturers passed on higher costs to customers, itself a factor that reduces new order volumes in a feedback loop that may become self-reinforcing.

Supplier delivery times were lengthened to the second largest degree in 46 months, directly reflecting the ongoing disruption to global supply chains due to the conflict in the Middle East and the virtual closure of the Strait of Hormuz since late February. Input purchases and inventories declined in May after a brief increase the previous month, as companies aligned purchases with lower production requirements. Inventories of finished goods also decreased.

Employment provided the only clear positive sign in the survey, rising marginally in May after three months of decline. The companies indicated that hiring reflects efforts made to speed up production lines and prepare for expected future projects. With hiring rates rising at a time of falling orders, the backlog has been exhausted at a strong and accelerating pace, indicating that the pipeline of committed business in the near term is dwindling.

Business confidence remained generally weak, with war-related uncertainty and the dampening effect of rising prices on the outlook. However, optimism rose compared to April, with companies expressing cautious hope that new orders will improve over the next year.