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Australian PBI: Business activity contraction eases in July

The Australian Industry Group Australian Performance of Business Index (Australian PBI) lifted by 11.1 points to 44.7 in July, pointing to a further contraction in activity in response to the COVID-19 pandemic but at a slower pace than in recent months (results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month).

Business conditions remained negative across most sectors in July, but some sectors benefited from an easing of activity restrictions in some locations. All four activity indices in the Australian PBI lifted further towards stabilising (50 points), after reaching record lows in April.

This month's Ai Group business surveys (Australian PSI®, Australian PCI® and Australian PMI®) were conducted prior to 'Stage Four' activity restrictions being announced for Melbourne.

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Ai Group Chief Executive, Innes Willox, said: "While business performance continued to worsen, July saw a sharp reduction in the pace of decline. The slump in production, investment and new orders evident over the past few months was arrested during July though not reversed. Of the component parts of the Australian PBI, manufacturing built further on the growth recorded in June while both the construction and services sectors remained in contraction though not as deeply as was the case in the past few months. In normal circumstances, a rebound in the Australian PBI of 11.1 points would suggest the likelihood of more robust recovery in coming months. However, these are not normal circumstances and the extraordinary Victorian lockdown and the reactions by other states and territories in light of the outbreak of COVID-19 infections will weigh heavily against any optimistic interpretations of the improvement in the Australian PBI in July. They also provide further evidence that the national economy was stabilising before the Victorian shutdown and show the need for further stimulus measures in the period ahead," 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 July

The Australian PBI rose by 11.1 points to 44.7 in July (all figures seasonally adjusted). This suggests a further contraction in activity, albeit at a less severe pace than in recent months, as various activity restrictions began to ease in some locations around Australia.

The PBI production / activity index lifted by a further 13.4 points to 44.8 in July. A handful of sectors reported some recovery in June and July including food-related retailing and the 'food & beverages' and 'chemicals & related' manufacturing sectors.

The PBI employment index improved by 13.8 points to 47.2 in July, indicating Australian business employment is moving closer to stabilising after precipitous falls in recent months. The Victorian Government, however, has estimated a further 250,000 people could lose their jobs (mainly but not exclusively in Victoria) as a result of the latest, more severe, restrictions.

The PBI new orders index rose by 14.4 points to 47.0 in July, indicating further falls in orders but at a slowing pace. Retailers in some locations benefited from lighter activity restrictions, with flow-on benefits to some parts of local manufacturing. Other large industrial, commercial and professional sectors reported further declines in orders from regular customers and few new customers. The PBI supplier deliveries index lifted by 5.9 points to 38.5 in July.

The PBI capacity utilisation index improved by 7.5 percentage points to 74.9% of existing capacity across all business sectors, after reaching a record low of 67.4% in June. This index has an historical correlation to unemployment and to non-mining business investment. Low capacity utilisation suggests rising unemployment and weak business investment.

The PBI input prices index recovered by 2.7 points to 54.1 points in July after falling to a record low of 51.4 points in June. It remains well below its long-run average. This reflects deflationary cost pressures as local and global demand falls.

The PBI selling prices index improved by 4.6 points to 40.5 points after reaching a record low of 36.0 points in June. This reflects depressed local sales and mounting deflationary pressures. These price falls are in line with the ABS consumer price index (CPI), which fell by 1.9% q/q and 0.3% p.a. in Q2, indicating deflation in Australia for the first time since 1998.

The PBI average wages index improved by 6.3 points to 46.3 points in July, indicating further (albeit milder) wage deflation. This index recovered briefly in May with the support of the JobKeeper wage subsidy, after hitting a record low in April. The ABS estimates 55% of all businesses were using JobKeeper in May, to support their employees’ incomes .

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