New index reveals accelerating industry slump

The Ai Group’s newly launched Australian Industry Index has taken a big fall in December/January 2023, dropping 10.5 points to minus 11.6 points. (Negative scores indicate contraction.)

This score indicates an acceleration of contraction in the industries covered by the index and is the ninth month of contraction since May 2022, according to Ai Group.

The new index complements the Australian Performance of Manufacturing Index and Australian Performance of Construction Index which will continue, and also covers business services sectors including utilities, transport, ICT and technical services.

Ai Group chief executive Innes Willox said: “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.”

Willox said that as the economy slowed in response to the policy focus on reducing inflation, there were 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.”

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
• And capacity utilisation remains high at 84 percent, with industry continuing to struggle with supply-side constraints.

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