Australian manufacturing activity contracted in November due to the ongoing impact of the strong Australian dollar, rising interest rates and skill shortages, new data show.

The latest Australian Industry Group - PwC Australian Performance of Manufacturing Index (Australian PMI) slumped 1.8 points to 47.6. Readings below 50 indicate a contraction in activity.

The expansion of seven of the 12 manufacturing sub-sectors in the month, including in textiles, was not enough to offset the falls in the other areas.

Of the five sub-sectors that declined in the month, the most significant falls were in the basic metals and machinery & equipment sub-sectors, the report says.

New orders across manufacturing continued to weaken in November. The new orders sub-index remained relatively stable at a level of 43.3, indicating ongoing contraction.

Employment was also down in the month.

"The continued softness in the Australian PMI underscores the difficult conditions confronting the industry," Australian Industry Group chief executive Heather Ridout said.

"In particular the ongoing weakness in the forward-looking new orders sub-index does not suggest that an early pick-up in activity is in prospect. Clearly, factors including the sustained high dollar, higher interest rates and skill shortages, together with the caution around spending on the part of business and consumers, are dampening the outlook for the sector with implications for the broader economy."

"It is clear that the much talked about multi-speed economy is taking hold, posing major challenges for trade exposed sectors which in turn poses major challenges for government. Indeed, the number one economic and social challenge now facing the Federal Government is to manage the unfolding minerals boom in a way that does not put at risk the objective of retaining a diversified and balanced economy," Mrs Ridout said.

PwC Global Head of Industrial Manufacturing, Graeme Billings, said "The pressure on domestic manufacturers is intensifying and businesses are searching for further cost savings. This is putting an even-higher premium on value-enhancing business improvements and innovation. At the same time, the exploitation of opportunities for value enhancement are constrained by growing shortages of skilled labour."