Australia’s manufacturing sector continued to weaken in October, led by a sharp decline in the metals sector, even as overall industry conditions showed signs of stabilising, according to the latest Australian Industry Index released by the Australian Industry Group (Ai Group).
Data show the index improved by 4.2 points to -11.2 on a seasonally adjusted basis in October, indicating that while activity remains in contraction, the pace of decline has slowed.
Ai Group noted that manufacturing has remained in “material contraction for much of the last year,” with metals and chemicals manufacturing experiencing the steepest falls.
“Manufacturing performance continued to weaken, particularly in the metals sector which is struggling with high energy prices and global trade headwinds,” the report stated.
According to the report, the metals index fell 17.3 points to -35.4, the lowest level since March 2025, as exporters faced mounting challenges in the US market and increasing global competition.
The chemicals index also declined sharply, dropping 8.6 points to -33.4 amid reduced investment and drought-related impacts.
Data show downstream manufacturing sectors were similarly affected, with the machinery and equipment index falling 2.5 points to -21.0 and the food, beverages and textiles, clothing and footwear (TCF) index down 8.4 points to -11.3.
According to Ai Group, food and beverage producers cited energy and input cost pressures, alongside weather-related disruptions to raw material supplies, though some reported stronger sales.
While the broader industry recorded mixed results, construction activity rose modestly in October, supported by easing labour supply constraints and improved market conditions.
Ai Group reported that the employment indicator returned to neutral for the first time in 18 months, reflecting improved access to workers, particularly in construction.
“The employment index rose by 10.9 points to a neutral reading of 0.0 in October — its first move out of contraction since March 2024,” the report said, noting that “construction led this change, reporting easing supply constraints for labour.”
However, labour shortages continue to affect productivity, with some firms reducing vacancies amid uncertainty over the economic outlook.
The report noted new orders remained steady through the month, but trend data suggested that the recovery in new business has been stalling since June.
Ai Group said respondents cited erratic demand, increased competition, and customer hesitation due to uncertain market conditions.
Pricing indicators were largely stable in October, with input costs edging higher and sales prices easing slightly. The report noted that margin pressure has begun to ease in recent months, as businesses start to pass on higher costs through price increases.
Ai Group also reported that capacity utilisation in Australian industry rose slightly to 77.6 per cent, consistent with fluctuations observed between 77 and 80 per cent since 2024.
