Australian industry is managing softening demand, labour shortages and persistent inflation in the face of a weakening economic outlook. Ai Group business intelligence data show uncertainty about the outlook has emerged as a major concern for businesses across the past few months.
Using the feedback from our Australian Industry Index monthly survey, our Business Conditions Sentiment Indicator tracks what businesses are reporting in terms of their principal opportunities and challenges. Scores above zero indicate positive sentiment, and those below zero negative sentiment (it detracts from business operations).
Customer demand was fairly weak at the end of 2022, showed some signs of improvement at the start of 2023, but fell to a low point in August. Businesses supplying to consumer markets reported that orders and sales fell off quite considerably in August after being maintained in previous months.
Customers paused or slowed decisions in the face of increased uncertainty, and there are signs of some returning to offshore suppliers in instances of price competition where supply fulfilment has improved.
Increased uncertainty has risen as a factor dampening business activity. The increase in interest rates being one of the components that has contributed to weaker customer demand locally. Lower demand globally is also impacting Australian exporters, despite a lower AUD.
Labour markets remain very tight, hovering around historical lows. Businesses continue to report difficulties finding and retaining the right staff. When unable to fill skilled roles, they are employing lower skilled people and planning to train, however not all roles are able to be covered and not all plans to upskill are successful.
Staff turnover during or just after training periods resulting in significant loss of productivity to business. The cost of employment for many businesses has risen. Unfilled roles have limited capacity to take on new orders.
Some businesses have reported an increase in the cost of hiring new staff, higher levels of sick leave and reduced output, combined these factors magnify the impact of increased employment costs and along with lower productivity, result in lower margins.
Input price inflation remains significant as businesses reported higher average increases over June and August. The weaker Australian dollar is contributing to the higher prices of imported inputs, and businesses also report concerns about expected increases to energy costs in the near future.
There are reports of increasing numbers of businesses reducing inventory – in response to both better delivery times and weaker customer demand. There are pockets of better news for some businesses reporting improvements to supplies. While it is too early to say that supply chains have widely improved there are signs of deliveries being completed at a higher rate.
Colleen Dowling is Ai Group’s Senior Research Analyst and has contributed to much of the organisation’s proprietary research, establishing a strong evidence base for our advocacy for Australian industry. With more than 10 years of research into conditions affecting businesses, Colleen has a solid understanding of the challenges and opportunities businesses face. Prior to Ai Group, she worked in industry in the wholesale and retail sectors as well as tertiary education. Colleen holds a Master of Business Management and a Bachelor of Arts, both from Monash University.
