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Cost pressures accelerate in June

Key findings

  • The Ai Group Australian Industry Index® eased in June but continued to point towards contractionary conditions.
  • The activity/sales, new orders and employment indicators all rebounded after a very weak May, but remain in negative territory.
  • The input prices and wages indicators both materially jumped in June, pointing to persistent cost and inflation pressures in industry.
  • Food manufacturing was the only subindustry to report expansion, while the contraction in construction and chemicals eased
  • Capacity utilisation lifted marginally to 76.5%, reflecting ongoing supply side pressures, particularly for labour.

The contractionary conditions in the Ai Group Australian Industry Index® continued but eased in June 2024, lifting 14.7 points to -25.6 points (seasonally adjusted). The index has indicated contraction for the last twenty-six months.

Industry activity

  • The deep contraction in the activity/sales indicator eased by 26.8 points in June, but continued to indicate decline at -31.1. The activity sub-index has been negative in trend terms since May 2022.
  • The employment indicator improved in June yet still remained in contraction (-8.7). This is the second month in negative territory following a positive result in April.
  • Respondents reported difficulties in converting enquiries into sales due to customer uncertainty around inflationary pressures and future demand.
  • Staffing shortages for skilled and lower skilled labour remain but with some signs of easing.

Leading indicators

  • The new orders indicator eased in June (up 10.4) but continued to point to contraction at -34.2.
  • On a trend basis, the new orders indicator has been negative and falling since July 2022.
  • The input volumes indicator was very similar to the May result at -9.
  • Input volumes have been very volatile in 2024, with April and May the only months to show expansion.
  • Many respondents reported new orders remained weak in June.

Prices and wages

  • Pricing indicators rose in June, suggesting inflationary pressures are persistent in industrial sectors.
  • The input price indicator rose by 16.0 points, and on a trend basis has not shown decline since the third quarter of 2023.
  • The gap between the input and sales prices indicators widened to 56.4 points, the largest gap since March 2020 indicating growing pressure on margins.
  • The average wages indicator grew by 12.1 points. At +53.6, it is the second highest monthly reading. This indicates broad market pressures for wage growth.

Australian PMI® and PCI®

  • The Australian PMI® (all manufacturing) indicator rose by 4.7 points but remains in contraction (-26.5).
  • The Australian PCI® (construction) indicator eased significantly (by 44.9 points) from the deep contraction in May to land at -23.2.
  • In trend terms construction has been deteriorating since the middle of 2023, while manufacturing has been consistently in mild contraction.
  • Manufacturers reported lower orders, input price hikes and increased competition to retain skilled staff.
  • Constructors reported supply delays, input cost pressures and a broad decline in customer confidence.

Upstream manufacturing

  • Upstream manufacturing indicators moved in different directions in June, but remain well in negative territory.
  • The chemicals industry continued a recovery in June, lifting 9.9 points to -8.6. In trend terms conditions have been improving across 2024.
  • The decline in minerals & metals continued, falling 8.7 points. This marks the lowest result for minerals & metals manufacturers since the Aii began in 2020.
  • Manufacturers from chemical industries reported an increase in customer demand, improvements in overseas orders and growth in long-term projects.

Downstream manufacturing

  • The machinery & equipment indicator improved by 1.3 points to be broadly stable at -4.8 in June. In trend terms the industry has been broadly stable across 2024.
  • Machinery manufacturers reported increased export sales, improved customer confidence and an increase in new orders.
  • Food, beverages and TCF was the only sub-sector to report growth in June (+11.8). In trend terms it has been recovering across 2024.
  • Respondents reported pockets of strong demand and increased interest from overseas customers, but inflationary pressures continue to impact the sector.

Business-oriented services

  • Business-oriented services indicated a similar levels of contraction in June (-27.7) to that of May.
  • This indicator includes utilities, technical services, and supply chain/transport providers.
  • Services respondents reported a decline in new orders, sales to the retail sector and lower export demand due to market uncertainty.
  • Respondents reported lower consumer confidence, export demand and retail sales. Increased government regulation is impacting the sector.

Capacity utilisation

  • Capacity utilisation in Australian industry crept up to 76.5% in June from 73.5 in May.
  • Utilisation has been trending down since the start of 2023, and is now below the post-pandemic average of 80.4%.
  • High capacity utilisation continues to reflect supply-side constraints, particularly for labour supply.
  • With contracting new orders and increased prices in June, it is likely that capacity utilisation will continue to trend down in coming months.

About the Australian Industry Index

The Australian Industry Index is a monthly index that measures changes in activity in Australia’s industrial sectors. It provides diffusion indices which measure rates of changes in the level of industrial activity – expansion, stability or contraction. A positive reading indicates the activity is expanding; negative indicates contraction. The distance from 0 indicates the strength of the expansion or decline.

The Australian Industry Index is based on monthly surveys from a national sample of Australian businesses. It uses ANZSIC industry codes for classifying sectors, and weights survey results using ABS data on gross value added by sector. Seasonal adjustment and trend calculations follow ABS methodology. Read more on our detailed methodology.

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