Activity in the manufacturing sector rose in July, entering its third quarter of expansion, because of stronger levels of production, new orders and deliveries, according to a survey.

The Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) climbed 1.5 points to 54.4 points in July, its seventh consecutive month of upward movement. Readings beyond 50 indicate growth.

The index show transport equipment, fabricated metals, basic metals and machinery and equipment sub-sectors gained from stronger demand in the mining and infrastructure industries in the month. Consumer-related sectors improved as well.

However, the high exchange rate continued to sway manufacturers with exports slumping in the month.

Australian Industry Group chief executive Heather Ridout said the recuperation in manufacturing carried on in July even with the fading impact 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 seeking for policies that would help obtain a full recovery.

"Interest rates and fiscal policy need to be set to support further expansion," Mrs Ridout said.

According to PricewaterhouseCoopers Global Head of Industrial Manufacturing, Graeme Billings, manufacturers were continuing to bounce back although they needed to keep investing, innovating and upgrading 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 suggested improvement in full-time employment growth over recent months could have aided consumer-related sub-sectors, such as textiles, recover in July.

After three months of expansion, the employment sub-index edged down slightly to 47.7 and manufactured exports continued to be limited by the higher exchange rate.

The survey showed manufacturing growth was strongest in NSW, Queensland, South Australia and Tasmania.