Q2’s record 328 purchase orders suggest booming demand, yet supply chain velocity increases raise serious questions about manufacturers’ future stability.
What’s happening: Australian manufacturers generated average revenue of $573,000 in Q2 2025, down 10.2% from a record Q1 but still up 27% year-on-year. Supply chain pressures intensified with lead times doubling from 12 to 25 days, the largest quarterly increase since the pandemic.
Why this matters: The mixed results reveal an industry navigating global trade tensions while experiencing unexpected bright spots in electronics manufacturing. With purchase orders hitting a two-year high of 328 in Q2 and Manufacturing PMI reaching 53.0 in August, confidence is building despite near-term challenges.
While overall manufacturing revenues softened in Q2, Australian electronics manufacturers bucked the trend with standout performance, generating average revenue of $827,000 according to the latest quarterly report from inventory management software provider Unleashed.
The electronics sector’s strong showing represents a continuation of what industry observers are calling a “mini boom” in locally-made electronics, from hand-held radio equipment to niche IoT devices. Despite falling from their record $968,000 Q1 performance, electronics makers still led all Australian manufacturing subsectors and maintained revenue levels more than $200,000 above any previous quarter on record.
“Australia has recently experienced the surprise blossoming of the local-made electronics industry,” the Unleashed report noted, crediting the sector’s growth to focused efforts on onshoring production of quality goods.
Supply chains under pressure
The broader manufacturing landscape faced headwinds in Q2, with average sales across all sectors falling to $573,859, marking a 10.2% quarter-on-quarter decline from the near-record opening three months of 2025. However, the figure still represents a healthy 27% year-on-year rebound, suggesting underlying resilience in the sector.
More concerning for manufacturers was the dramatic deterioration in supply chain conditions. Lead days, which had been consistently improving since COVID-19 disruptions, registered their single largest quarterly increase since 2020, jumping from 12 days to 25 days.
“It’s been a tense standoff so far this year for Australian manufacturers,” said Jarrod Adam, Head of Product at Unleashed. “On one hand, the Reserve Bank has been bringing down interest rates, and there have been earnest efforts to onshore more Australian production of critical goods. On the other hand, tariffs have taken a hammer to many of our exports, and energy prices have bitten into margins.”
Excess stock levels similarly deteriorated, nearly tripling to $98,000, representing the largest quarter-on-quarter increase since 2020. While both metrics remain within normal historical ranges, Adam warned that “the sheer velocity of their increases does raise questions.”
Raw materials defy logic
Australian raw material manufacturers continued to outperform expectations despite facing the brunt of international trade tensions. The sector generated average revenue of $822,000 in Q2, down from an all-time high of $900,000 in Q1 but still well above figures from the previous two years.
“Australian raw material manufacturers are at the coal face of the trade wars raging overseas, so conventional wisdom would tell us they would all be feeling the pinch,” Adam explained. “But digging into the numbers, our makers in this sector have defied the macro conditions and enjoyed a strong first half of the year.”
However, the sector wasn’t immune to broader supply chain pressures, with overstock swelling to $175,000 of excess inventory in Q2, nearly tripling from Q1 levels. This reverses a two-year trend of deliberate stock reduction amid export uncertainties and tariff complications.
Food and beverage manufacturers maintained more stable performance, with food producers averaging $516,000 in revenue and beverage makers $609,000, though both sectors saw modest declines from Q1 levels.
“It’s been a tough few years and input costs have been spiking, especially around freight and labour, which has taken the shine off margins in some channels,” said Leighton Cosgrave, General Manager of Radix Nutrition, a health convenience brand that also provides specialist freeze-dried contract manufacturing.
Confidence returns
Despite Q2 challenges, forward-looking indicators suggest improving conditions ahead. Purchase orders swelled from 177 in Q1 to 328 in Q2, marking the highest level in two years and signalling renewed confidence among manufacturers’ customers.
This optimism is reflected in broader manufacturing sentiment. Australia’s Manufacturing PMI rose to 53.0 in August 2025 from 51.3 in July, marking the fastest expansion since September 2022 and signalling sustained acceleration in manufacturing confidence.
The PMI reading, which indicates expansion when above 50, stayed above the neutral threshold for the eighth consecutive month, suggesting ongoing improvement in operating conditions across the sector.
“Stability is finally emerging, and as we pace into the second half of the year, the usual summer confidence is allowing decisions to be made and positivity to enter the market,” Cosgrave added.
Profit margins remained relatively stable at 36% across the manufacturing sector, representing only a marginal 0.3% quarter-on-quarter decline and 0.6% year-on-year drop, suggesting manufacturers have successfully maintained pricing power despite cost pressures.
The Unleashed report, based on data from more than 1,400 small and mid-sized manufacturers using the inventory management platform, covers sectors including food and beverage, clothing and fashion, and construction materials.
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