Australian Industry Group Australian Industry Index

Australian Industry Index

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Energy uncertainty weighs on new orders

Key findings

The Australian Industry Index® remained weak in May with the index declining to -26.5 seasonally adjusted.
Industrial conditions remained weak due to the energy crisis, which is weighing heavily on new orders. Firms report widespread delays in investments while the future path of energy markets is uncertain.
Cost pressures remained elevated but eased slightly, while weaker selling price growth points to limited pricing power. Wages growth picked up, adding to ongoing labor cost pressures.
Metals manufacturing rose in response to supply disruptions, but other branches reported weak conditions. Business services – hitherto less affected by the energy crisis – reported a material downturn as investment uncertainty began to impact in May.

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May 2026

Energy crisis insights

Liaison highlights on energy crisis impacts - May 2026

Rising input costs (28%) remained the dominant pressure on businesses in May, with widespread reports of higher fuel, freight and raw material costs, including plastics, resins, packaging and metals. Fuel-related surcharges and logistics costs continued to flow through supply chains, increasing transport expenses and overall operating costs.

Some businesses described ongoing material price volatility and the need to secure stock in advance to manage anticipated increases.
Some firms continued to report limited capacity to pass through higher costs due to weak demand and competitive pressures, leaving margins constrained.

Uncertainty (18%) remained elevated, driven by volatility in fuel prices, global geopolitical developments and domestic policy settings. Businesses noted delays in client decision-making, slower project approvals and reduced confidence among customers. Investment and procurement decisions were frequently postponed, reflecting a cautious operating environment.

Demand (17%) showed mixed conditions. While some sectors showed seasonal or sector-specific improvements, overall demand conditions remained subdued.

Businesses cited reduced customer spending, fewer orders, and increased price sensitivity, with increased customer price comparison and competitive tendering and delaying commitments.

Supply chain disruption (13%) continued to affect operations, with reports of freight delays, extended lead times and higher shipping costs. Firms reliant on imported inputs cited disruptions linked to global shipping routes and rising fuel costs.

Some businesses responded by diversifying suppliers or increasing inventory holdings, although this added to cost pressures. Equipment and vehicle availability also remained constrained in some sectors due to regulatory and supply limitations.

Workforce availability (8%) emerged as an ongoing constraint on capacity and growth. Many businesses had difficulty attracting and retaining skilled workers, alongside higher labour and training costs. Persistent vacancies, unplanned absences and competition from other sectors were cited as key challenges.

Some firms adjusted work arrangements, including compressed weeks or flexible work options, to retain staff, while others were scaling back operations or growth plans due to limited workforce availability.

Activity indicators

Industry activity

The decline in the activity/sales indicator softened slightly to -32.6, though is still at some of the lowest recorded levels
The employment indicator edged higher but remained in contraction at -14.6 seasonally adjusted.
Activity remained soft with slow demand and rising costs weighing on conditions while cautious customers continue to delay purchasing decisions.
Labour conditions remained uneven, with some businesses reporting ongoing skill shortages and hiring challenges, alongside rising wage costs that are constraining capacity, while others have reduced hours in response to weaker demand.

Leading indicators

The new orders and input volumes indicators both declined in May. New orders fell by 6.3 points to -34.6, returning to a level last seen in late 2024.
Input volumes decreased by 5.5 points, reflecting ongoing supply chain disruptions linked to transport constraints and higher freight costs.
Businesses reported a sharp decline in new orders, with customers scaling back re-orders and forward pipelines thin as uncertainty suppresses new investments.
Input volumes remain constrained by continued supply disruptions, including procurement delays and limited material availability, alongside rising raw material and shipping costs driven by global pressures.

Prices and wages

Input prices remained elevated at 63.1, although the 6.4 point decline indicates a slower pace of increase.
Sales prices remained subdued at 18.3, falling 2.4 points, indicating weaker pricing power and a limited ability to pass on costs amid soft demand.
The gap between input costs and sales prices points to ongoing pressure on profit margins.
The average wages index rose by 6.0 points to 43.6, signalling a reacceleration in wage growth and continued labour cost pressures, reflecting ongoing tight labour market conditions for higher-skilled roles.

Australian PMI® and PCI®

The Australian PMI was in contraction at -22.4. While the 5.1 point monthly increase showed a slower decline, conditions remain fragile.
Manufacturers saw increased logistics costs and supply disruptions, with higher input prices and uncertain future supply. Weaker demand alongside rising operating costs, weigh on sales volumes.
The Australian PCI® continued rebound momentum in May, rising 9.0 points to -9.9.
Constructors conveyed rising concerns about future conditions, project delays and higher costs with stock shortages continuing despite steady new enquiries.

Upstream manufacturing

The upstream manufacturing indicators both contracted in May. Chemicals fell by 2.2 points to -28.7, while the metals rose significantly by 31.3 points to -16.5.
Some chemical manufacturers reported major customers pulling back on re orders, while overseas competition, rising fuel cost, labour, and rent continue to weigh on sales.
Metals manufacturers had steady repeat business from existing clients, including long term rollingstock and refurbishment work, but a lack of orders from new customers.

Downstream manufacturing

The machinery & equipment index decreased by 3.1 points to -31.4.
Machinery and equipment firms reported weak demand for capital equipment, alongside supply constraints and rising borrowing costs.
The contraction in Food, beverages & TCF eased slightly by 0.4 points, to -17.9.
Food and beverage manufacturers indicated increased levels of product diversification were boosting sales however, growth is being constrained by rising fuel costs, disruptions to raw material supply, and weaker economic conditions.

Business-oriented services

The business-oriented services fell by 12.0 points in May (-19.6), to be deeper in contraction at -33.3. The lowest result since February 2025.
This indicator covers utilities, technical services, and supply chain/transport providers.
A large share of businesses reported shortages of skilled labour, the impact of higher interest rates, uncertainty, material costs and supply constraints.
Some businesses described improved purchase orders following changes to marketing strategies.
Wholesale suppliers to consumer-oriented customers noted reports of weak consumer foot traffic, while construction-related activity remained soft.

Capacity utilisation

Capacity utilisation in Australian industry moved downwards to 75.7% in May.
Capacity utilisation scores have been more volatile since 2025 and are now trending below the long-term range of 77-82%.
Capacity utilisation was constrained by rising energy costs, raw material shortages from supply chain disruptions, higher fuel prices and the impact of poor government regulation.
Persistent economic uncertainty, rising unemployment and limited capital investment are expected to continue weighing on utilisation in the coming months.

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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