The Australian Industry Group Australian Performance of Business Index (Australian PBI) plunged by a further 6.4 points to 39.8 in March – a fourth consecutive month in contraction for the newly published index and the largest single-month drop recorded since February 2009* (results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month).
This reflects a very sudden and rapid deterioration in Australian business conditions and activity as a result of escalating restrictions in response to the COVID-19 pandemic.
Ai Group Chief Executive, Innes Willox, said: "The COVID-19 pandemic crushed business activity in March with sharp falls in production and orders, a further though more moderate fall in employment and a drop in selling prices. The immediate outlook is for further deterioration with an acceleration of cancelled and reduced orders over the month. The most severe impacts to date have been in industries that were already weakened by underlying contraction such as metal product manufacturing, apartment building, commercial construction and among retail trade and hospitality businesses. The March fall in business conditions is the largest single-month drop in the Australian PBI since the GFC and we are all hoping the strong stimulus measures announced by the Federal Government, the Reserve Bank and the states and territories ensure further falls are limited. Nevertheless, the constraints in place around social activity including in some workplaces, while necessary, will make further contraction very difficult to forestall," Mr Willox said.
The Australian PBI is a weighted composite of Ai Group's Australian Performance of Manufacturing Index (Australian PMI®), Australian Performance of Services Index (Australian PSI®) (released today and available at this link), and Australian Performance of Construction Index (Australian PCI®).
Australian PBI key findings for March
The Australian PBI declined by a further 6.4 points to 39.8 in March, its lowest level since July 2013.
The PBI production / activity index also declined by 6.4 points to 39.8 in March. A handful of sectors increased their production unexpectedly in response to demand volatility as a result of COVID-19 (e.g. food and grocery manufacturing and IT services) but most sectors suffered a large and sudden drop in activity.
The PBI employment index recovered 2.0 points to 45.3 in March, indicating a continued but milder fall in employment levels across Australian businesses. This was a third consecutive month of decline (under 50 points). The timing of the Ai Group business performance surveys this month means it might not reflect the widespread job losses in the final week of March, as retail, hospitality and other consumer services businesses closed or cut services due to COVID-19 measures.
The PBI new orders index fell by 13.5 points to 37.2 (its lowest level since 2013) as cancelled and reduced orders became widespread through mid-to-late March.
The PBI capacity utilisation index fell by 1.4 percentage points to 77.8%, remaining above its long-run average (75.3%) but likely to deteriorate rapidly over coming months as businesses' output is slashed.
The PBI input prices index jumped a further 8.5 points to 72.4 in March, with survey respondents reporting sharp increases in local and global freight costs, on top of the depreciation in the Australian dollar.
The PBI selling prices index fell by 1.5 points to 48.4 in March, indicating another month of very mild price falls after four months of mild price rises in late 2019.
The PBI average wages index fell 1.8 points to 59.5 in March, after recording a recent high in January, and remains above its 2019 average of 58.4 points. This reflects the nature of the first wave of employment responses to COVID-19, which have primarily involved reductions in work hours and/or employment numbers, rather than reductions in salaries or wage rates per hour.
More information on the Australian PBI is available at this link.
* Ai Group's Australian PBI is a new publication for 2020, but it is based on our performance index data commencing from 2006.
Ai Group has been closely monitoring the economy-wide snapshot this aggregated data provides for some time. We have now decided to publish and share this valuable information more widely.
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