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Australian PBI: Sudden and rapid slump in business conditions to historic low

The Australian Industry Group Australian Performance of Business Index (Australian PBI) fell a further 12.6 points to 27.2 in April – the lowest monthly result in the Australian PBI and the largest single-month drop since the series commenced in 2005 (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 sudden and rapid deterioration in business conditions is evident across all sectors of the economy but is especially pronounced in consumer-oriented services that are shut down, while the giant construction industry is reporting a severe downturn in new orders, activity and employment.

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Ai Group Chief Executive, Innes Willox, said: "Business performance fell precipitously in April as businesses were shut down by social distancing restrictions; supply chains were disrupted; and households and businesses withdrew their contributions to spending. Production and activity were curtailed in all but a few areas of the economy such as medical, food & grocery manufacturing and IT services. The steepest declines in performance were in retail trade & hospitality, apartment building, commercial construction and among businesses manufacturing textiles, clothing, footwear, paper & printing products. Even following the announcement of the JobKeeper scheme, the labour market was hit hard in April with the Australian PBI employment index plunging to its lowest reading in the life of the series (since 2005). The forward-pointing new orders series also hit a record low, lending no encouragement to hopes of a rapid recovery. Easing restrictions and delivering further policy actions are critical to stemming the pace of decline and would help unlock consumer and business spending," 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 April

The Australian PBI declined by a further 12.6 points to 27.2 in April – the lowest monthly result and the largest single-month drop since the series commenced in 2005.

The PBI production / activity index declined by 9.0 points to 24.8 in April. A handful of businesses increased production in March and April in response to demand (e.g. in medical, food and grocery manufacturing and IT services) but the majority suffered a large and sudden drop in activity.

The PBI employment index plunged by 16.4 points to 28.8 in April. Employment losses were evident across all sectors but especially in consumer services. ABS data confirms over 1 million job losses (7.5% of the workforce) in the month to 18 April.

The PBI new orders index plummeted by 14.1 points to 23.1 – another record low and the largest monthly fall in this series. History suggests this index 'leads' business sales by about three months, but the widespread and sudden nature of this crisis means the usual time lag between customer orders and production is likely to be shorter.

The PBI capacity utilisation index fell to a record low of 67.9% of existing capacity (on average) across all business sectors. This was the first time this index has moved below 70%. This index has an inverse historical correlation to the national unemployment rate. The RBA and Treasury expected the unemployment rate to peak above 10% in 2020.

The PBI input prices index fell by 9.2 points to 63.1 in April, reflecting lower oil prices, a lower Australian dollar and rapidly falling demand in April. Survey respondents continue to report sharp increases in local and global freight costs plus major disruptions to freight deliveries.

The PBI selling prices index fell by a further 6.9 points to 39.6 in April. This was the lowest level and the largest monthly fall recorded since this pricing index commenced in 2009. It reflects the collapse in local sales for many businesses.

The PBI average wages index plunged by 14.2 points to 37.5 in April – the lowest level and the largest monthly fall recorded since this wages index commenced in 2007. The size and speed of this decline closely mirrors the sharp drop in employment in April, suggesting the index is probably reflecting a drop in total wages paid by businesses rather than the 'average wage rates' that the survey question is intended to convey. In the current circumstances and with wage subsidies (JobKeeper) and other assistance commencing in April, it may be impossible to untangle the two.

 

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.

Media enquiries: Tony Melville – 0419 190 347