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Australian PBI: Business conditions slump again in September

The Australian Industry Group Australian Performance of Business Index (Australian PBI) fell by 4.5 points to 38.1 in September, pointing to a further contraction in activity and at an accelerating pace. This reflects the ongoing impact of COVID-19 and renewed activity restrictions and border closures in response to it (results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month).

Three of the four activity indices in the Australian PBI – production, new orders and supplier deliveries – deteriorated further in September, indicating the steeper pace of decline, and business conditions remained negative across most sectors. Bright spots persisted in food-related manufacturing, distribution and retailing, and housing construction is improving outside Victoria, while commercial and engineering construction, heavy manufacturing and business-related services continue to report severe downturns in most locations.

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Ai Group Chief Executive, Innes Willox, said: "The fall in the Australian PBI is further evidence of the fragility of the domestic economy and of the rocky road to recovery. With the manufacturing, construction and services indexes all pointing to further weakness in September, the stimulus provided to the economy in last night's Budget is timely and commensurate with the difficult task at hand. The PBI production index fell sharply and while the employment index lifted in September, it is still pointing to a very soft jobs market and the new orders index fell again in the month. The national economy was undoubtedly dragged down in September by the challenging situation in Victoria. With COVID-19 cases now much lower and with restrictions gradually being eased, the Federal Budget should help lift confidence and get the economy moving again," 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 September

The Australian PBI fell by 4.5 points to 38.1 in September (all figures seasonally adjusted). This renewed slump comes after a promising lull in June and July and is on top of the widespread losses in output, sales and employment in Q2, which the ABS estimates to have been Australia's worst quarter of contraction on record.

The PBI production / activity index fell by 11.2 points to 31.7 in September – back towards May's low point after a lull in July. Parts of manufacturing and house construction reported expanded production volumes in September, but all other sectors shrank.

The PBI employment index improved by 6.3 points to 47.1 in September, indicating that employment is moving closer to stabilising.

The PBI new orders index fell by 6.1 points to 38.2 in September, indicating further falls in orders in Q3 and lessening the prospect of a stronger recovery in the months ahead. The PBI supplier deliveries index dropped by 13.7 points to 31.3, after a slower pace of decline in August.

The PBI capacity utilisation index was largely unchanged in September at 72.9% of existing capacity across all business sectors, up from a record low of 67.4% in June.

The PBI input prices index recovered by a further 3.6 points to 60.7 points in September, remaining well below its long-run average after falling to a record low of 51.4 points in June. The PBI selling prices index remained at 45.3 after reaching a record low of 36.0 points in June, suggesting mild price deflation amid depressed local demand.

The PBI average wages index recovered by 7.8 points to 52.9 in September, indicating mild wage growth may have recommenced after hitting a record low in April.

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