Australian industry activity fell sharply in September, with sales, employment, and new orders deteriorating as weak demand, elevated costs, labor shortages, and economic uncertainty weighed on businesses, according to a report released by the Australian Industry Group on Wednesday.

The activity/sales indicator fell 28.5 points to negative 31 in September, while employment declined to negative 15.6, with businesses reporting shortages of qualified tradespeople and difficulties retaining workers, the report said.

New orders fell 22.4 points to negative 35.9, reversing August's gains, as firms reported weak enquiries, subdued demand, and declining business confidence, while input volumes dropped to negative 12.9 amid lower orders and supply-chain constraints.

Input prices fell 10.6 points to 56.8, while sales prices increased 13 points to 13.6, indicating improved cost pass-through, although wage pressures persisted as the average wages indicator rose 2.8 points to 49.5.

Manufacturing improved but remained in contraction, with the Australian Purchasing Managers' Index rising 6.2 points to negative 8.7, while food, beverage, textile, clothing, and footwear surged and chemicals and metals continued to struggle.

Construction activity weakened sharply, with the Australian Performance of Construction Index falling 29.8 points to negative 34.5, while business-oriented services dropped 31 points to negative 31.1 amid low confidence, weak enquiries, and rising material costs.

Capacity utilization fell to more than 77% in September despite the trend measure reaching its highest level since October 2025, as rising costs, labor absenteeism, and competition continued to constrain capacity.