AUSTRALIAN INDUSTRY INDEX

Uncertainty hits industry in March

Key findings

The Australian Industry Index® fell slightly by 3.1 points to -22.2 seasonally adjusted in March.
Uncertainty factors – particularly disruptions caused by US trade policies, forex volatility and the Australian federal election – are now affecting industrial markets and activity.
While cost pressures further ease the sales price indicator has fallen to neutral, indicating ongoing pressure on industrial margins.
Demand remained weak, as both new orders and activity indicators were affected by uncertainty factors.
Manufacturing and construction both performed poorly in March. While the construction indicator has improved since late 2024, manufacturing continues to point to entrenched contraction.

The Ai Group Australian Industry Index^® declined by 3.1 points to
-22.2 points in March (seasonally adjusted). The index has indicated contraction for the last thirty-three months.

March 2025

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Industry activity

The activity/sales indicator contracted further in March, falling further by 7.7 points to -31.5. The trend data points to falling industrial activity over the first quarter of 2025.
The decline in employment eased, lifting by 5.8 points to -7.3 points. Industrial employment has improved in trend terms in early 2025 since a low point in the fourth quarter of 2024.
Businesses reported a pause in activity leading attributed to election uncertainty and natural disasters such as bushfires and cyclones.
Customer confidence has been impacted by global uncertainty including US tariff policy changes.

Leading indicators

The contraction in new orders worsened by 3.7 points, falling to -25.0 in March. The indicator has been steady across the first quarter of 2025 following some recovery in the second half of 2024.
Input volumes fell by 8.6 points to -11.4 following stable results in February. In trend terms, input volumes have been contracting since late 2023.
Demand decreased again in March with very lower enquiries. The general economic slowdown and global uncertainty are also beginning to effect trade and product flows in global supply chains.

Prices and wages

Pricing indicator moved in different directions in March. However, trend data suggests industrial inflation is continuing to ease through early 2025.
The sales price indicator has been close to neutral since late 2024, indicating that industrials are no longer able to pass on rising costs through their pricing.
Wage and input price indicators have been steadily declining for a year, but remain far higher than sales and thus still point to pressure on industrial margins.
Businesses anticipate significant impact from trade disruption emanating from the US, but are report to report changes in pricing so far.

Australian PMI® and PCI®

The Australian PMI® for manufacturing fell by 17.8 points, continuing to indicate contraction at -29.7.
The Australian PCI® (construction) dropped by 14.7 points to -19.3. Although it remains in contraction, in trend term it has improved over the past six months.
Some manufacturers reported loss of customers with the slowing economy. Moreover, US tariffs and a weak AUD are impacting the supply of raw materials.
Builders reported that clients are hesitant to commit due to cash flow concerns while current work volumes mostly rely on existing long-term contracts.

Upstream manufacturing

Upstream manufacturing eased slightly in March.
The chemicals index fell from the improvement by 5.8 points to -3.4. The contraction in the minerals and metals declined further by 9.5 points to -42.3.
Chemical manufacturers reported slower sales demand due to natural calamities in part of the country and global economic uncertainty.
Most minerals and metals manufacturers reported a decline in activity. Cost pressures, weaker cash flow, and uncertainty around US tariffs dragged on the sector.
Since mid-2024 the upstream manufacturing branches have diverged, with easing energy prices enabling recovery in chemical while metals continues to slide.

Downstream manufacturing

The machinery & equipment indicator dropped by 10.8 points to -29.6, the lowest result since mid-2020.
Machinery manufacturers reported weaker capital expenditure, higher cost pressures, and slower demand from construction customers.
Food, beverages & TCF dropped by 18.8 points to -22.3 in March. This is a highly volatile indicator and in trend terms points to a gradual recover since mid-2024.
Food and beverage manufacturers reported lacklustre sales except for some major customers. Operating costs and labour shortages impacted business performance.

Business-oriented services

The business services indicator rose by 2.6 points in March but was still negative at -19.2. This indicator includes wholesalers, technical services, and supply chain/transport providers.
The business services index had been flat in trend terms since late 2023.
Some respondents reported an increase in orders from repeat customers, while other noted a downturn due to uncertainty and soft consumer confidence.
Weakness in in real estate demand and increased overseas competition impacted profit margins.

Capacity utilisation

Capacity utilisation in Australian industry moved down slightly to 79.0% in March.
Utilisation has been trending down since the start of 2024 and is now below the post-pandemic average of 80.4%.
Capacity utilisation was constrained by labour shortages, equipment limitations, and disruptions in raw material supply.
Volatile demand for new orders and sales impacted labour availability and workflow over March.

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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