AUSTRALIAN INDUSTRY INDEX

Manufacturing bucks recovery trend

Key findings

The Australian Industry Index® fell slightly by 1.8 points to -11.9 seasonally adjusted in June.
Supply side factors eased as input costs and average wages declined, pointing to continued softening of inflationary pressures.
Demand side weakness continued, as new orders dropped while sales remain subdued, with manufacturers particularly affected.
Business services continued to lift and rose to the best result in two years. Construction has been slowly recovering since mid-2024 amid a strong pipeline of historical work.
Manufacturing performance continues to decline despite the broader recovery in industrial sectors, with conditions in the machinery and metals especially poor.

The contractionary conditions in the Ai Group Australian Industry Index® continued and deteriorated slightly in June by 1.8 points to
-11.9 points (seasonally adjusted). The index has indicated contraction for the last thirty-six months.

June 2025

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Industry activity

The contraction in sales activity eased slightly to
-15.6 in June. Since reaching a recent trough at the start of 2024, the trend has shown gradual signs of recovery.
Employment improved by 6.6 points to be broadly stable at -1.9. This is the first time the index has approached neutral since March 2024.
The steady recovery evident in trend data for sales and employment points to improving conditions for the industrial sectors.
Larger contracts are helping sustain operations, but skilled labor shortages and retail sector weakness continue to pose challenges for some respondents.

Leading indicators

The new orders index edged down slightly, landing at -13.8, a similar rate to the previous month. Since mid-2024, the indicator has shown a gradual trend of improvement.
Input volumes fell by 8.9 points in June to -11.7, reversing May’s gains and matching earlier lows.
Some respondents noted signs of enquiries picking up, though overall demand remained soft and reduced orders reflected a cautious outlook for customer spending in June.
Market conditions remain strained as global volatility, regulatory changes, and competition from imports continue to disrupt supply chains and curtail orders.

Prices and wages

Pricing indicators showed mixed results in June. The sales price indicator increased to 5.5, while the input prices indicator decreased to 36.5.
The gap between sales prices and input costs improved by narrowing to 31.0 in June. However, the wide gap continues to point to margin pressures.
The wages indicator remained stable at 36.8, and it has been steady in trend terms since late 2024.
Pricing remains under pressure from geopolitical uncertainty, weak local demand, import competition, and climate-related economic impacts.

Australian PMI® and PCI®

Manufacturing continued to contract with the PMI declining to -29.3; construction also eased to -14.9.
In trend terms, manufacturing performance continues to slide, while the construction sector appears to have turned a corner since the start of 2025.
Manufacturers had sales impacted by weather, rising costs, and trade uncertainty which weakened buyer confidence, in response discounts and flexible payments were employed to boost demand.
The construction sector is seeing steady activity from past contracts, but sluggish new approvals, weak development pipelines, and limited new demand are holding back growth.

Upstream manufacturing

Upstream manufacturing indicators moved in different directions in June.
The chemicals index improved by 12.8 points to -22.4 but in trend terms remains weak.
Improving exports to the UAE and South America lifted chemicals in June but face hurdles like economic uncertainty, high import costs, and regional droughts.
Minerals & metals dropped by 23.9 points to -31.2, reversing gains seen in May.
Some metals firms face rising rates, tough competition, and weak construction demand, while others benefit from EOFY sales and new infrastructure projects.

Downstream manufacturing

The machinery & equipment indicator improved by 7.1 points to -41.4.
Machinery makers faced transport limits, tariff strain, and weak agri-construction demand, while others saw gains from renewables and post-election orders.
Food, beverages & TCF fell by -14.4 points, to remain in contraction (-23.4) in June.
Food and beverage producers saw weaker demand from low tourism and alcohol consumption, plus staffing and cost pressures, though some gained from rising exports to Europe and Southeast Asia.

Business-oriented services

Business-oriented services sector rose 0.9 points to be broadly stable at -2.9 in June. After two years of contraction, the industry has been showing material improvements across 2025.
This indicator includes wholesalers, technical services, and supply chain/transport providers.
Some respondents reported a pickup in activity driven by end-of-financial-year and seasonal demand leading to higher volumes of new and repeated orders.
Others highlighted challenges such as a shortage of skilled staff, limited government funding, and market uncertainty, all of which are hindering their operations.

Capacity utilisation

Capacity utilisation in Australian industry moved slightly upwards to 77.9% in June.
Utilisation scores have become more volatile since 2024 and mostly it is trending below the range of 79-82%.
Some respondents indicated that increased new orders lifted capacity utilisation and it is likely that capacity utilisation will increase in coming months.
Despite some easing, capacity utilisation remained constrained due to skilled labour shortages, rising living costs and growing competition.

About the Australian Industry Index

The Australian Industry Index is a monthly index that measures changes in activity in Australia’s industrial sectors. It provides diffusion indices which measure rates of changes in the level of industrial activity – expansion, stability or contraction. A positive reading indicates the activity is expanding; negative indicates contraction. The distance from 0 indicates the strength of the expansion or decline.

The Australian Industry Index is based on monthly surveys from a national sample of Australian businesses. It uses ANZSIC industry codes for classifying sectors, and weights survey results using ABS data on gross value added by sector. Seasonal adjustment and trend calculations follow ABS methodology. Read more on our detailed methodology.

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