Australian Industry Conditions Sharply Deteriorate: Ai Group

Australia’s Industry Index edged down 1.0 point to -26.5 in May 2026, underscoring persistent industrial weakness amid an energy crisis and economic uncertainty. New orders plunged 6.3 points to -34.6, back to late-2024 lows, as firms cited delayed investment, thin pipelines, and cautious re-ordering. Input volumes fell 5.5 points, reflecting supply chain disruptions, transport bottlenecks, and high freight costs. Activity/sales stayed subdued at -32.6, while employment remained in contraction at -14.6 despite modest improvement, with uneven labor conditions marked by skill shortages and reduced hours. Cost pressures eased but remained heavy: input prices dropped 6.4 points to 63.1, sales prices slipped 2.4 points to 18.3, leaving margins strained. Meanwhile, wages rose 6.0 points to 43.6. Capacity utilisation eased to 75.7%, constrained by surging energy costs, raw material shortages, and regulatory hurdles, with weak investment and uncertainty expected to weigh further on conditions.

Australia’s Industry Index rose by 9.8 points to -24.4 in April 2026, signaling some stabilisation but still pointing to a deep contraction in industrial conditions. Key components strengthened modestly: activity and sales, as well as employment, each gained 4.5 points to -31.2 and -25.2, respectively, while new orders climbed 7.7 points to -24.8. Input volumes also picked up, rising 6.6 points to -5.5, suggesting a tentative recovery in demand. Yet cost pressures surged: the prices index jumped 13.5 points to 69.3 as fuel levies filtered through supply chains, pushing selling prices up 10.1 points to 23.1 and wages 2.1 points higher to 36.2. Capacity utilisation rebounded to 77.7% after earlier declines. Despite these gains, firms remain constrained by skilled labour shortages, elevated energy costs, lingering supply disruptions, and intensifying competition from online and overseas suppliers, underscoring structural headwinds even as headline conditions show modest improvement.

The Australian Industry Index fell 19.9 points to -23.6 in March as the energy crisis hit. The indicator reversed its 2026 recovery with the steepest monthly fall in the series. Domestic demand weakened amid Middle East conflict uncertainty while rising fuel costs and supply chain disruptions weighed on activity. The employment index dropped sharply to -28.7 reflecting levels not seen since May 2020 as weaker activity led firms to consider reducing hours despite persistent skills scarcity. New orders declined 21.7 points to -23.0 as paused projects and lower confidence constrained the pipeline while input volumes fell 12.9 points into contraction. Pricing indicators showed intensifying pressure with input prices rising to 8.5 as energy costs spiked while sales prices rose as firms attempted to pass on costs despite a widening gap between the two indices. Economic activity remains under pressure with capacity utilization falling below the long term average of 77% to 82%.