The Australian Industry Group Australian Performance of Business Index (Australian PBI) fell by 2.1 points to 42.6 in August, pointing to a further contraction in activity and at a faster pace than in July as renewed activity restrictions and border closures took effect (results below 50 points in the Australian PBI indicate deteriorating business conditions, with lower numbers indicating a faster pace of deterioration in the month).
Business conditions remained negative across most sectors, with bright spots persisting only in food-related manufacturing, distribution and retailing. The worsening slump in August comes after the Australian PBI recorded its lowest monthly result in April (27.2 points) and Australia experienced the worst contraction in GDP on record in Q2 2020 (-7.0% q/q and -6.3% p.a.).
Ai Group Chief Executive, Innes Willox, said: “The further slump in business conditions in August comes after the record 7 percent decline in GDP in the June quarter and dampens remaining hopes of a V-shaped recovery. The Australian PBI reading for August, though disheartening, is not at this stage pointing to a further fall in GDP in the current quarter. Much will depend on the impact of the ongoing Victorian restrictions that are weighing down activity in that state and holding back recovery elsewhere. The scale of the downturn to date and the severity of the hit to confidence mean that active measures to stimulate the economy will need to continue for some time yet,” Mr Willox said.
The Australian PBI is a weighted composite of Ai Group’s Australian Performance of Manufacturing Index (Australian PMI®), Australian Performance of Services Index (Australian PSI®) (released today and available at this link), and Australian Performance of Construction Index (Australian PCI®).
Australian PBI key findings for August
The Australian PBI fell by 2.1 points to 42.6 in August (all figures seasonally adjusted). The faster pace of contraction reflects the effects of renewed activity restrictions and border closures nationally in response to the COVID-19 pandemic.
The PBI production / activity index fell by 1.9 points to 42.8 in August – a faster pace of contraction than in recent months as only food-related retailing, distribution and manufacturing sectors reported expanding their production volumes.
The PBI employment index slid 6.3 points lower to 40.9 in July, indicating employment in Australian businesses is still shrinking in the wake of ABS estimates of an 874,700 drop in total employment between February and May (-6.7%p.a.).
The PBI new orders index fell by 2.8 points to 44.2 in August, indicating further falls in orders in Q3 and lessening the prospect of a stronger recovery in the months ahead. The PBI supplier deliveries index lifted by a further 6.5 points to 45.0, although some businesses reported August included deliveries that had been delayed from previous months.
The PBI capacity utilisation index was largely unchanged in August at 74.4% of existing capacity across all business sectors, up from a record low of 67.4% in June.
The PBI input prices index recovered by a further 3.0 points to 57.1 points in August, remaining well below its long-run average after falling to a record low of 51.4 points in June. The PBI selling prices index improved by another 4.6 points to 45.1 after reaching a record low of 36.0 points in June, amid continued depressed local sales and deflationary pressures.
The PBI average wages index dropped by 1.1 points to 45.1 points in August, indicating a further slowing in wage growth in Q3 of 2020. This index recovered briefly in May with the support of the JobKeeper wage subsidy, after hitting a record low in April.