AUSTRALIAN INDUSTRY INDEX

Pricing indicators fall with disinflation

Key findings

The Australian Industry Index® fell in October, pointing towards a broadening of the challenging business conditions in industry.
All industrial activity indicators fell in the month, with employment – recently the strongest – continuing to decline in trend terms.
The input price indicator eased to its lowest level since 2020, consistent with lowering of inflationary pressures.
The sales price indicator turned negative, indicating that more businesses were cutting than lifting sales prices.
The manufacturing indicator (PMI) improved, but construction (PCI) showed its lowest monthly reading since the pandemic.
Capacity utilisation continued dropped to 74.3% on the back of weak activity and employment results.

The Ai Group Australian Industry Index® declined in October 2024, losing 10.1 points to -28.8 points (seasonally adjusted). The index has indicated contraction for the last thirty months.

October 2024

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Industry activity

The activity/sales indicator slipped further in October, falling by 7.5 points to -32.9 seasonally adjusted.
The employment indicator fell by 9.6 points to -23.9 seasonally adjusted.
On a trend basis, employment has been consistently declining across 2024 while activity has stabilised. This reflects the lagged passage of lower activity into employment levels.
Most respondents reported slower sales, although some experienced a boost in activity due to seasonal promotions for summer and the holiday period.

Leading indicators

New orders fell by 13.9 points to -38.8 in October. In trend terms, the new orders indicator has remained steady at around -30.0 throughout 2024.
The input volumes indicator dropped by 7.9 points to fall into contraction at -8.7. Input volumes are highly volatile, but throughout 2024 have been mildly negative.
Many respondents expressed concerns about rising input costs amid weakening demand. They also noted a lack of consumer confidence and increased regulatory burdens especially in the building sector.

Prices and wages

Input prices eased by 12.6 points to 34.2 in October, its lowest reading since 2020. This reflects the broader unwinding of inflation.
The sales prices indicator declined falling into negative territory at -5.3. This indicates that more businesses are cutting than increasing sales prices.
The average wages indicator was steady in October, following a spike generated by the wage increase for award employees in July.
The gap between the sales and input price indicators narrowed in October. But the movement of the sales price indicator into negative territory, while inputs and wages remain strong, points to broadening margin pressure on industrial businesses.

Australian PMI® and PCI®

The Australian PMI® (all manufacturing) improved (14 points) to land at -19.7. In trend terms, the indicator has consistently stayed around -27.0 for the past three months.
The Australian PCI® (construction) indicator dipped by 21.1 points further into contraction (-40.9). One of the lowest readings in the series.
Manufacturers reported lower-than-expected sales, but some face capacity constraints due to labor shortages and tight deadlines.
Builders faced project delays due to slowing property markets, rising material and wage costs, and increasing land prices.

Upstream manufacturing

Upstream manufacturing indicators showed mixed movements in October but stayed in negative territory.
Chemicals declined by 2.1 points to -23.4, however the contraction in the minerals and metals sector eased lifting 18.1 points to -14.2.
Some chemical manufacturers reported softening demand from customers and a lack of customer confidence, however some respondents reported a boost in sales due to government initiatives.
Some manufacturers from minerals and metals industries reported increased activity, however others indicated soft sales, increased burden from government regulation and lack of skilled staff constrained business activity.

Downstream manufacturing

The machinery and equipment index (-21.7) contracted further in October.
Some machinery manufacturers reported an increase in export sales and new local orders due to seasonal boosts. Others saw reduced activity due to weaker demand conditions and lower capital expenditure investment.
The highly volatile food, beverages & TCF indicator eased by 1.2 points to -11.6 in October.
Food & beverages manufacturers reported export sales were dampened by higher costs and global economic uncertainty. Some noted an increase in new orders being brought forward for the upcoming holiday period.

Business-oriented services

Business-oriented services fell a further 10.9 points in
October, to be in contraction at -24.4.
In trend terms, business services have been stable in the -15-20 range for the last year.
This indicator includes utilities, technical services, and supply chain/transport providers.
Service providers to the construction sector noted slower demand, an increase in wages costs and customers pausing investment decisions in anticipation of conditions improving in the new year.
Employment and selling prices were generally weak but there were bright pockets of increased demand in seasonal activity being brought forward.

Capacity utilisation

Capacity utilisation continued dropped to 74.3% on the back of weak activity and employment results.
Utilisation has been trending down since last year and it is now below post-pandemic average of 80.4%.
Utilisation is a lagging indicator, and is likely to continue trending down based on lower new orders results from earlier in 2024.
Falling utilisation suggests that the supply side constraints that have contributed to inflationary pressures in Australia are continuing to ease.

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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