Business services drive Australian industrial recovery as manufacturing remains weak

Australian industry showed signs of recovery in July, driven primarily by business services, whilst manufacturing continued to struggle, according to the latest Ai Group Australian Industry Index released on Tuesday.

The index improved by 5.8 points to -3.2 seasonally adjusted in July, marking its strongest score in three years. Business services led the recovery, continuing to strengthen since the start of the year and driving the overall industrial improvement.

However, manufacturing remained very weak with no signs of recovery yet. Trade risks and energy costs are holding back recovery in manufacturing relative to other industrial sectors, according to the report.

The sales indicator improved to -8.1 in July, the highest result since August 2022, whilst employment edged down slightly to -4.0. New orders rebounded by 6.8 points to reach -4.9, offsetting a slight decline in June.

Rising input costs and wages intensified supply-side pressures, signalling ongoing inflation risks whilst sales prices declined. Demand conditions improved in July, with improvements in new orders and sales, whilst employment dipped marginally but remained generally steady.

Construction also showed signs of strengthening, gaining momentum since the start of 2025. Businesses reported mixed results with variations in customer demand, with construction and services positive whilst manufacturing remained weak.

The report highlighted employment challenges, particularly difficulties with the right skills fit in labour hire and construction-related sectors.

Picture: supplied