Activity in Australia's industrial sectors continued to shrink in September, with growing uncertainty emerging as a significant impediment to investment and new orders.

The seasonally adjusted Australian Industry Index declined further into contractionary territory as indicators for activity, employment, and new orders all worsened in September to reverse much of the previous month's gains, the Australian Industry Group said in a Wednesday report.

The new orders indicator, which has been under pressure since the onset of the energy crisis, slid by 22.4 points to negative 35.9. The result came as businesses pointed to low enquiry levels and muted demand amid a range of uncertainties driven by factors such as trade disruption. However, stronger demand from data centers and defense customers provided some pockets of growth.

The Australian manufacturing PMI gained 6.2 points to negative 8.7 as performance within the industry diverged. Upstream industries continued to grapple with energy prices while downstream industries saw relatively better performance.

The Australian construction PCI fell 29.8 points to negative 34.5 in September, with the group noting that construction activity has been decelerating since Easter because of low consumer confidence and higher costs for materials.

The surveyed firms cited input cost pressures as having the largest negative impact in September amid higher prices for energy, fuel, freight, raw materials, and imported components. Wage hikes added further pressure, with the average wages indicator rising 2.8 points in September to 49.5.

Additionally, lenders grew more cautious over credit risk and exposure, resulting in some firms experiencing difficulty in accessing finance. Loan and lease approvals took longer in September, while constrained levels of investment capital made it harder for businesses to expand capacity.