In October, Australia’s manufacturing sector exhibited signs of improvement, yet remained under significant pressure, according to the latest Ai Group’s Australian Industry Index.
The index saw an overall decline, underscoring widespread challenges across industrial activities, as rising costs and waning consumer confidence affected nearly all sectors.
The manufacturing-specific indicator, the Australian PMI, saw an unexpected lift, rising 14 points to -19.7, indicating a slight easing in contraction.
While this improvement suggests a temporary uptick, the trend for the PMI has stayed around -27.0 for several months, reflecting an ongoing struggle for growth.
Capacity constraints continue to hinder some manufacturers, particularly due to labour shortages and rigid project deadlines, keeping many businesses from fully capitalising on seasonal demand.
Upstream manufacturers, such as those in the chemicals and metals sectors, reported varied performance.
The chemicals index slipped slightly to -23.4, with reports of weak demand and diminished customer confidence.
However, certain government initiatives led to a modest boost in sales for some in the sector.
The minerals and metals sector fared slightly better, rebounding by 18.1 points to -14.2, yet regulatory challenges and labour shortages continued to limit growth.
Downstream manufacturing painted a similarly complex picture. The machinery and equipment index declined to -21.7 as manufacturers grappled with weak demand and reduced capital investment.
Nevertheless, a few machinery manufacturers benefitted from increased export sales and new local orders prompted by seasonal trends.
Food, beverage, and textile manufacturing experienced only a marginal decrease, down 1.2 points to -11.6, as export sales were dampened by high costs and global economic uncertainties.
Pricing pressures have shifted notably within the manufacturing sector. The input price indicator dropped to its lowest level since 2020, signalling reduced inflationary pressures as overall demand softened.
However, the selling price index turned negative at -5.3, meaning more businesses were lowering prices in an attempt to stimulate sales, reflecting increased competition and tightening margins across the industry.
In broader terms, capacity utilisation, a key metric of manufacturing efficiency, declined further to 74.3 per cent.
This marks a continued decrease from the post-pandemic average of 80.4 per cent and points to unused capacity as new orders wane, particularly in construction-related manufacturing.
Lower utilisation is seen as a lagging indicator but could signal a further easing of supply-side pressures contributing to inflation.
