The Australian Industry Group Australian Performance of Business Index (Australian PBI) lifted by 1.8 points to 33.6 in June, pointing to a further contraction in activity in response to the COVID-19 pandemic but at a slightly slower pace than in May (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 almost all sectors in June, with bright spots evident in food, grocery and medical manufacturing and related wholesaling. Some sectors are benefiting from easing of activity restrictions in some states of Australia.
Ai Group Chief Executive, Innes Willox, said: "Business activity contracted again in June, despite some easing of trading restrictions across Australia. Production and new orders improved but remained firmly in contraction while the decline in employment continued. This latest data suggests that the negative impact of COVID-19 activity restrictions on Australia's manufacturing, services and construction industries will continue well into the second half of this calendar year. The pricing indices indicate that Australia experienced price deflation in the second quarter of 2020 as demand evaporated across the economy," 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 June
The Australian PBI rose by 1.8 points to 33.6 in June (all figures seasonally adjusted). This suggests a further contraction in activity, albeit at a less severe pace than in May, as various activity restrictions began to ease in some locations around Australia.
The PBI production / activity index lifted by a further 3.2 points to 31.4 in June. Large reductions in output and activity remain evident across the economy. Indeed, across all the sectors that are included in the PBI, only the 'food & beverages manufacturing' and 'chemicals & related manufacturing' sectors have not reported large sustained drops in activity since late March.
The PBI employment index dropped by 1.6 points to 33.4 in June, indicating further falls in employment in Australian businesses.
The PBI new orders index rose by 2.6 points to 32.7 in June, indicating further falls in orders but at a slowing pace. Consumer-facing businesses in some locations are benefiting from lifting activity restrictions, with flow-on benefits to parts of wholesaling and manufacturing; other large industrial, commercial and professional sectors reported further declines in orders from regular customers and few new customers. The PBI supplier deliveries index remained at 32.6 points in June – its lowest level since 2009.
The PBI capacity utilisation index fell by 2.6 percentage points to a new record low of 67.4% of existing capacity (on average) across all business sectors. Record low capacity utilisation suggests rising unemployment and falling business investment from here.
The PBI input prices index fell by a further 11.1 points to a new record low of 51.4 points in June. This reflects deflationary cost pressures as local and global demand falls.
The PBI selling prices index fell by a further 1.8 points to a new low of 36.0 points in June. This reflects depressed local sales for many businesses and mounting deflationary pressures. The RBA expects headline inflation (CPI) to have turned negative in Q2 of 2020 and for prices to rise by an average of just 0.25% over the year to December 2020.
The PBI average wages index fell by 5.5 points to 39.9 in June, having briefly recovered in May on the back of the JobKeeper subsidy after April's record low. The ABS estimates 55% of all businesses were accessing Jobkeeper in May, to support their employees' incomes.
