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AUSTRALIAN INDUSTRY INDEX

Demand conditions improve into new year

Key findings

  • The Australian Industry Index® continued a slow improvement Dec/Jan, rising to its highest level in twelve months.
  • The new orders and activity/sales indicators both slightly rose, suggesting that demand conditions have turned a corner but remain subdued.
  • All pricing indicators were heading in the same upward direction, indicating inflationary pressures remain high for industrials.
  • Chemicals and food industries posted stronger holiday periods, while machinery and metals reported seasonal slowdowns.
  • Most sub-industries indicated shortages of skilled labour, increased cost of living and uncertainty in the economy affected activities.

The Ai Group Australian Industry Index® lifted in December/January period, improving 1.4 points to -17.4 points (seasonally adjusted). The index has indicated contraction for the last thirty-one months.

December / January 2025

Industry activity

  • The contraction in the activity/sales indicator improved slightly in Dec/Jan, rising by 2.0 points to -18.4. On a trend basis, the indicator has been improving over the last twelve months, albeit in contractionary territory.
  • The employment indicator fell by 10.2 points further into contraction (-17.1 points) in Dec/Jan. On a trend basis, employment has stabilised between the range of -15 to -17 in the fourth quarter of 2023.
  • Some businesses reported lower sales prices due to overseas competition, while others were also impacted by supply shortages during the holiday season.

Leading indicators

  • New orders improved by 5.0 points to -13.7 in Dec/Jan. It is the best reading of this indicator since September 2023.
  • On a trend basis, the new orders index has consistently recovered across 2024, but remains negative.
  • Input volumes dropped by 5.8 points compared to November and remained in contraction at -16.9. This indicator has mostly contracted for the past three years.
  • Although a few respondents experienced high demand in December and January, the majority noted a slowdown in orders during that time.

Prices and wages

  • All pricing indicators rose in Dec/Jan and remained highly elevated over neutral levels, suggesting broad based price increases continued.
  • The input prices and sales prices indicators both grew but remained below their record levels in 2022.
  • The gap between the input and sales prices indicators widened to 49.3 points, indicating pressures on margins are being sustained.
  • The average wages indicator rose by 25.6 points. This is the highest reading for this indicator historically. At +48.9, it indicates broad market pressures for wage growth.

Australian PMI® and PCI®

  • The Australian PMI® for all manufacturing sectors fell by 2.0 points, continuing to indicate contraction at -22.7. In trend terms, the indicator has been flat for the last twelve months.
  • The Australian PCI® (construction) indicator rose by 3.2 points to land at -20.0. In trend terms, the indicator has been flat for the last twelve months.
  • Manufacturers were faced with increased overseas competition and unfavorable exchange rates for imported raw materials. Some reported ongoing wage pressure and difficulties recruiting skilled talent.
  • Constructors reported challenging weather conditions and high wages, alongside rising material costs and a shortage of skilled workers.

Upstream manufacturing

  • Upstream manufacturing indicated mixed results over the holiday period but stayed in negative territory.
  • The contraction in the chemicals sector eased by 15.5 points to -11.0, however the minerals and metals sector declined by 10.4 points to -39.9.
  • Some chemical manufacturers reported increasing sales due to seasonal demand. Some respondents also reported a boost in sales due to government initiatives.
  • Manufacturers from minerals and metals industries reported major demand side pressure as new orders fell over the holiday shutdown. Some indicated increased competition put pressure on prices and margins.

Downstream manufacturing

  • The machinery & equipment index declined significantly to -30.5.
  • Machinery reported reduced activity due to weaker demand conditions during the holiday period. Supply disruption to raw material imports and shortages of skilled labour constrained business outputs.
  • Food, beverages & TCF recovered by 18.3 points, but remained slightly in contraction at -4.8.
  • Food and beverage manufacturers reported higher sales volumes due to festive demand and improved availability equipment. Increased geopolitical uncertainty led to concerns about future orders for manufacturers.

Business-oriented services

  • The business services sector eased by 4.0 points but remained in contraction, lifting to -10.9 in Dec/Jan.
  • This indicator includes utilities, technical services, and supply chain/transport providers.
  • The business services index has been volatile over the past two years and has mainly been in contraction from early 2023.
  • Services businesses reported sustained wages pressure, while also facing a decline in new orders due to disruptive weather conditions and the cumulative effects of higher interest rates.

Capacity utilisation

  • Capacity utilisation in Australian industry moved slightly upward to 79.8% in Dec/Jan.
  • Utilisation has been improving across 2024, as activity levels have stabilized.
  • However, the historically high-capacity utilisation rate continues to reflect supply-side constraints, particularly for labour supply.
  • Some respondents indicated that if new orders improve, it is likely that capacity utilisation will increase 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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