AUSTRALIAN INDUSTRY INDEX

Sales prices stall in September

Key findings

The Australian Industry Index® improved slightly in September but continued to point towards challenging business conditions.
Indicators for activity/sales, inputs, new orders and employment all improved slightly, but remain in negative territory.
The sales price indicator fell to neutral, continuing a downward trend over the last six months. With input prices and wages remaining elevated, this points to growing margin pressure.
Chemicals, machinery and business services reported slight declines, slower demand and persistent cost pressures.
Construction recovered slightly but continues to report weakness due to slower inquiry conversions and permit challenges.

The Ai Group Australian Industry Index® eased slightly in September 2024, lifting 4.9 points to -18.6 points (seasonally adjusted). The index has indicated contraction for the last twenty-nine months.

September 2024

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Industry activity

The activity/sales indicator recovered slightly by 3.3 points but continued to indicate contractionary conditions at -25.4 points (seasonally adjusted).
The contraction in employment eased by 6.3 points to
-14.3 seasonally adjusted.
On a trend basis, the activity indicator has been negative for 29 months and the employment indicator for 18 months.
The majority of respondents reported slowing demand in September, however there are pockets of increased activity boosted by changes in seasonal demand.

Leading indicators

The new orders indicator eased by 1.6 points but remains in contraction at -25.0 points.
In trend terms, the new orders indicator has hovered around -30 throughout 2024.
Input volumes improved from the previous month to be stable (-0.8). Input volumes have been volatile across 2024 and in trend terms are in contraction.
Many respondents reported concerns about slow orders and increased local and global competition, others had steady or increasing orders from existing customers.

Prices and wages

Input prices increased slightly to 46.8 but were lower than the recent peak in July 2024 (63.8). In trend terms they have been elevated (~50) across 2024.
The sales prices indicator declined by 16.1 points, falling to neutral for only the third month since the pandemic.
The growth in average wages eased by 14.4 points to 33.3. This continues an easing pattern following the wages increase for award employees in July.
In trend terms, the sales price indicator has been declining since mid-2023, while the input price and wages indicator has been steady and elevated.
This points to growing margin pressures on industry across 2024, with industrial businesses unable to fully pass on rising materials and wage costs.

Australian PMI® and PCI®

The Australian PMI® (all manufacturing) dipped by 2.8 points further into contraction (-33.6).
In trend terms this is the lowest result of this series; the indicator has been declining since September 2022.
The Australian PCI® (construction) indicator eased (by 18.3 points) to land at -19.8. In trend terms the indicator reached a low in June 2024 and is now starting to recover.
Manufacturers reported deferred and reduced investment levels, increased competition, pressure from input costs and labour shortages.
Builders reported significant delays and higher costs for permits. Despite an uptick in construction enquiries, conversions to sales are being deferred due to increased costs.

Upstream manufacturing

Upstream manufacturing indicators moved in different directions but remained in negative territory.
Chemicals declined by 5.9 points to -21.3, however the contraction in the minerals and metals sector eased lifting 8.4 points to -32.3.
Chemical manufacturers reported lower sales particularly from the construction sector, reduced competition amongst suppliers, and significant margin pressures.
Some minerals and metals manufacturers reported challenges attaining skilled staff, and increased competition led to discounting. Others reported solid ongoing demand.

Downstream manufacturing

The machinery and equipment index (-16.9) contracted at a similar pace to the previous month.
Respondents from machinery and equipment reported reduced customer investment, increased energy costs and pressure on margins. Some businesses had higher demand particularly from export markets.
The highly volatile food, beverages & TCF indicator increased by 5.5 points to -12.8 in September.
Food & beverages noted lower order volumes due to price pressures being passed through to consumers. Some reported increased activity as orders for seasonal holiday preparation were brought forward.

Business-oriented services

Business-oriented services indicated a similar level of contraction in September (-13.5) to that of August.
This indicator includes utilities, technical services, and supply chain/transport providers.
Business services have been weak and in contraction for almost two years except for a couple of months in which they were broadly stable.
Some services businesses reported lower consumer spending impacted wholesale trade, and increased cost pressures from wages and energy.

Capacity utilisation

Capacity utilisation in Australian industry eased down to 78.4% in September.
In trend terms, capacity utilisation has been increasing since the middle of 2024, but remains below the peak occurring after the pandemic.
The slight easing in capacity utilisation suggests a moderate reduction in labour market scarcity which has been elevated since the pandemic.
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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