Manufacturing, Manufacturing News

Industry contraction accelerates in December-January: Ai Group

Industry contraction accelerates in December-January: Ai Group

The Ai Group’s newly consolidated Australian Industry Index® fell in the last two months marking the ninth month of industry contraction since May 2022. 

The Australian Industry Index® dropped 10.5 points to -11.6 points in December/January 2023. P

The Australian Industry Group’s (Ai Group’s) new Australian Industry Index® provides a monthly summary of business conditions in Australia’s industrial sector, explained Innes Willox, Ai Group chief executive.

“The longstanding Australian Performance of Manufacturing Index (Australian PMI) 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.”

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.
  • Energy-intensive manufacturers and business services fell into decline.
  • Capacity utilisation remains high at 84 per cent, with industry continuing to struggle with supply-side constraints.
Positive scores indicate expansion; negative scores contraction
Positive scores indicate expansion; negative scores contraction

“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,” Willox said.

“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,” he added.

“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.”

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