Industry contraction accelerates in December/January

The Ai Group Australian Industry Index® fell in December/January 2023, dropping 10.5 points to -11.6 points. This score indicates an acceleration of contraction in the industries covered by the index. This is the ninth month of contraction since May 2022 (Values below 0 indicate contraction, and above 0 indicate expansion. The distance from 0 indicates how widespread the change is: 20 is more widespread expansion than 10).

Innes Willox, Chief Executive of the national employer association Ai Group said: "Ai Group's new Australian Industry Index provides a monthly summary of business conditions in Australia's industrial sector. The longstanding Australian Performance of Manufacturing Index and Australian Performance of Construction Index will continue in a slightly modified form in the new single monthly report. The Ai Group Australian Industry Index® also covers business services sectors including utilities, transport, ICT and technical services.

"The initial report of the new Ai Group Australian Industry Index® highlights the considerable pressures facing Australia’s industrial sector as we move into 2023. Longstanding supply constraints eased slightly over the December-January period and input prices continued to rise although the extent of increases fell dramatically. The pace of sales price rises and wage increases also eased in the December-January period supporting the view that inflation may have peaked towards the end of 2022. As the economy slows in response to the policy focus on reducing inflation, there are signs of weakening demand in the industrial sector with sales and new orders falling and employment growth easing. Energy-intensive manufacturers and business service providers are reporting the steepest declines in activity to date. With the Reserve Bank deciding to raise the cash rate further, the decline in industrial sector activity underlines the risks of an excessive tightening of policy over coming months," Mr Willox said.

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Key findings for December/January 2023:

• The contraction in Australian industry accelerated during December / January 2023.
• Activity, input volumes and new orders contracted in the face of declining demand. 
• Supply chain and labour pressures eased slightly, but remain elevated on long-term trends.
• Pricing indicators (wages, inputs and sales) all fell from record levels, but remain elevated. This suggests inflationary pressures may have peaked in late 2022.
• Manufacturing contracted more broadly than the early pandemic contraction, while construction activity rebounded as absenteeism continued to improve.
• Energy-intensive manufacturers and business services fell into decline.
• Capacity utilisation remains high at 84%, with industry continuing to struggle with supply-side constraints.

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About the Ai Group Australian Industry Index®
The Ai Group 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. The detailed methodology is available here.

When referring to the Ai Group Australian Industry Index® the source should be attributed as “Australian Industry Group”.