The latest data from the Ai Group Australian Industry Index® has revealed a sharp decline in manufacturing activity in July 2023, with the index dropping 2.8 points to -14.7 points (seasonally adjusted). This marks fifteen consecutive months of contractionary conditions in the industry since the current interest rate rising cycle began.
Key findings from the July 2023 report indicate a concerning economic slowdown across the manufacturing sector. The Australian Performance of Manufacturing Index (PMI®) fell drastically to -25.6, indicating conditions not witnessed since the height of the pandemic. This decline was mirrored in several other key indicators, including employment, industrial activity, and new orders, all of which showed weakening trends, pointing to a broader contraction.
The report highlights that price indexes experienced mild increases, reflective of lower yet persistent inflation. Most notably, the average wages indicator surged by 14.0 points to reach its highest level, indicating ongoing wage pressures within the tight labour market. Capacity utilisation also experienced a marginal drop, settling at 79.0%, reflecting the slowing state of industrial conditions.
Innes Willox, the Chief Executive of the national employer association Ai Group, expressed concern over the current state of the industry. “Australia’s economic slowdown has squarely hit industry,” he stated. “Manufacturers are now reporting pandemic-era conditions, and the construction sector continues to grapple with structural issues. Sales, employment, and new orders are all on a downward trajectory, while cost pressures persist despite inflation having peaked.”
Of particular concern, Willox emphasised is the record pace at which wages are rising amid the looming threat of contractionary conditions. The already struggling industrial sectors are bracing for additional pressures due to proposed changes to industrial relations laws.
The continuous contraction in the manufacturing industry raises questions about the overall health of the Australian economy. As businesses face ongoing challenges, policymakers and industry leaders must work collaboratively to address the root causes of the economic slowdown and implement measures to support recovery.