Industrial conditions remained weak in the country due to the energy crisis, which is weighing heavily on new orders. Firms reported 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. Wage growth picked up, adding to ongoing labour cost pressures.
Industrial conditions were weak in Australia in May due to the energy crisis, which is weighing heavily on new orders.
Firms reported widespread delays in investments.
Persistent economic uncertainty, rising unemployment and limited capital investment are expected to continue weighing on capacity utilisation in future.
Businesses cited reduced customer spending and increased price sensitivity.
Rising input costs (28 per cent) 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 continued to report limited capacity to pass through higher costs due to weak demand and competitive pressures, leaving margins constrained.
Uncertainty (18 per cent) 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 per cent) 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 per cent) 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 per cent) 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.
The decline in the industry activity/sales indicator softened slightly to minus 32.6, though is still at some of the lowest recorded levels.
The employment indicator edged higher but remained in contraction at minus 14.6 seasonally adjusted.
Activity remained soft with slow demand and rising costs weighing on conditions, while cautious customers continue to delay purchasing decisions.
The new orders and input volumes indicators both declined in May. New orders fell by 6.3 points to minus 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.
The country’s purchasing managers’ index (PMI) was in contraction at minus 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 upstream manufacturing indicators both contracted in May. Chemicals fell by 2.2 points to minus 28.7. 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.
Capacity utilisation in Australian industry moved downwards to 75.7 per cent in May. Capacity utilisation scores have been more volatile since 2025 and are now trending below the long-term range of 77-82 per cent.
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.
Fibre2Fashion News Desk (DS)
