Australia's private sector gained further momentum in July, with the flash composite output index rising to 52.6 from 50.4 in June, according to data released by S&P Global. The flash estimate is based on approximately 85–90% of total survey responses, with final figures typically released around a week later. The reading marks a second consecutive month of expansion and the strongest since the start of the year, with growth running above the series average.

The improvement was driven almost entirely by services. The flash services PMI business activity index climbed to 53.0 from 50.5, registering the fastest pace of services growth since January. Manufacturing remained comparatively subdued: the headline manufacturing PMI edged up to 51.7 from 51.5, while the manufacturing output index rose to 49.9 from 49.5 — still below the 50.0 threshold that separates expansion from contraction, but the best outcome since the beginning of 2026.

A notable feature of the July survey was the return of new business growth, which ended a four-month run of decline — the longest such stretch since early 2024, according to S&P Global. The expansion in new orders was broad-based across both monitored sectors, with survey panellists citing improved demand conditions, a slight lift in market confidence, and new client wins. International demand, however, remained a weak spot, with export sales falling at a steeper rate than in June.

Backlogs of work rose for the first time in five months, encouraging firms to accelerate hiring. Job creation reached its strongest pace since April, with recruitment increasing across both services and manufacturing.

On the pricing front, input cost inflation eased to its softest rate since February, continuing to decelerate from an April peak. Even so, respondents widely cited fuel, oil, raw materials, and wages as persistent cost pressures. Manufacturers raised selling prices at a softer pace than in June, while stronger services demand enabled more assertive pricing among service providers. This lifted the composite rate of charge inflation above June's level, though it remained below the highs recorded in April and May.

Eleanor Dennison, economist at S&P Global Market Intelligence, said the data would provide some comfort that conditions are moving in the right direction. She noted that demand had shown signs of recovery for the first time in five months and that the private sector was being boosted by domestic demand, given a deeper fall in international sales.

Dennison added that output growth remained solely supported by services, with manufacturing showing only greater stabilisation rather than a convincing rebound. She observed that softer cost pressures alongside more stable demand had encouraged firms to protect their margins more actively.

Even so, she cautioned that businesses remain wary heading into the second half of the year. Business confidence rose only slightly from June's level, which had been a more than two-and-a-half-year low, and growth expectations for the coming 12 months remained clouded by uncertainty.

Easing cost pressures may give the Reserve Bank of Australia some policy flexibility, though the weaker export performance and persistent business caution suggest the recovery is domestically led and not yet broad-based. Australia reports GDP on a quarterly basis, making high-frequency surveys like the PMI a closely watched gauge of private-sector momentum between official releases.

The PMI data follows Australia's June 2026 jobs report, released the prior day, which showed an unemployment rate of 4.4% — in line with expectations and unchanged from the previous month. (Australian June 2026 jobs report)

Traders are likely to read the PMI release as modestly supportive for the Australian dollar without materially shifting the near-term interest-rate outlook. Market participants will look to the final PMI figures, due later in July, for confirmation of the flash readings.