AUSTRALIAN INDUSTRY INDEX

Industry improves into Easter

Key findings

The Australian Industry Index® strengthened in March, pointing to a steady recovery in industry across the first quarter of 2024.
In trend terms, all four Aii component indexes – activity/sales, employment, new orders and inputs – have been recovering since a low occurring at the end of 2023.
However, negative readings for sales and new orders continue to point to overall weak, if improving, conditions in Australian industry.
March saw mixed results in upstream manufacturing, but improvement in business services and consumer facing industries.
Input prices increased while sales and wage indicators dropped very slightly in March suggesting continuing margin pressure on businesses.

The contractionary conditions identified by the Ai Group Australian Industry Index® eased in March 2024, lifting by 9.5 points to -5.3 points (seasonally adjusted). The index has indicated contraction for the last twenty-three months.

March 2024

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Industry activity

The activity/sales indicator lifted by 8.4 points in March but continued to indicate contractionary conditions at
-8.8 points (seasonally adjusted).
In trend terms, it appears the activity indicator hit a low around Christmas 2023, and has been improving across the first quarter of 2024.
Reflecting improved conditions, the industrial employment indicator moved out of contraction and into mild growth at +4.2.
Some respondents reported increased sales, supply improvement and better labour supply, however others continued to face challenges recruiting skilled staff.

Leading indicators

The new orders indicator was broadly stable in March at -16.8. This followed a much steeper contraction across the new year period
In trend terms, the new orders index has been recovering following the low at Christmas. However, the indicator continues to point to weak order books.
Input volume improved to move out of contraction to +10.5. This indicator has mostly been in negative territory for the last two years.
Some respondents noted an uptick in demand as customers had run down inventory, others across the subsectors reported a slower or stable orders.

Prices and wages

All price indicators grew in March. Input prices recorded the highest level since July 2023, while sales (16.1) and average wages (39.7) results were similar results to February.
After declining in late 2022, all pricing indicators remain structurally elevated across 2023 and 2024.
The gap between the input and sales prices indicators widened to 44.7 points, indicating growing pressure on industrial margins.
The average wages indicator fell slightly and remains below the peak of mid-2022. At +7 it indicates that market pressures for wage growth remain strong.

Australian PMI® and PCI®

The Australian PMI® (all manufacturing) indicator rose by 5.6 points but remains in contraction (-7.0). In trend terms, the PMI has been improving across 2024.
The Australian PCI® (construction) indicator rose by 5.5 points to land at -12.9. In trend terms construction has been declining since mid-2023.
Manufacturers reported a slow March with continuing difficulties recruiting suitable people for vacant positions and obtaining reliable overseas suppliers.
Construction industry players reported highly competitive market conditions, while new building projects significantly decreased.

Upstream manufacturing

The chemicals indicator rebounded significantly in March, rising 48.5 point to be stable +1.1. However, in trend terms chemicals has been in contraction since late 2022.
The minerals and metals indicator declined by 6.8 points in March but continues to show improved scores compared to winter 2023.
Upstream manufacturers reported poor governance and restrictions hindering productivity, exports and sales.
Some upstream manufacturers also reported weak orders, difficulties recruiting and retaining staff, stronger competition, and higher cost pressures.

Downstream manufacturing

The machinery & equipment index improved by 5.6 points, to be broadly stable at -1.5.
Some respondents reported increased demand and improved supplies led to fewer disruptions. Others noted increased customer uncertainty from slower economic conditions and inflationary pressures.
Food, beverages & TCF – a highly volatile industry – rebounded to +0.2.
Food and beverage manufacturers reported lacklustre sales and weaker consumer demand led to slower cash flow and lower margins.
Supply chain disruption and rising costs continued to impact the sector.

Business-oriented services

The business-oriented services sector improved by 11.2 points, climbing from a deep contraction across the new year period into stability in March (-0.6).
This indicator includes utilities, technical services, and supply chain/transport providers.
The business services index had been trending downward from early 2023, but the decline started to ease in February 2024.
Services businesses reported fragility in new orders due to increased prices and customer uncertainty.
Some reported improved activity, but shortages of specific skilled occupations also constrained capacity to deliver existing projects.

Capacity utilisation

Capacity utilisation in Australian industry moved upwards to 81.7% in March.
This followed a record high in early 2023, has ranged between 79-82% for most of 2023.
High-capacity utilisation continues to reflect supply-side constraints, particularly for labour supply.
Declining demand conditions reported since the new year have started to translate into loosened capacity constraints.

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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