Australian PSI®: Services Sector activity decline moderates

Services sector activity nudged closer to growth in August with the seasonally adjusted Australian Industry Group - Commonwealth Bank Performance of Services Index (Australian PSI®) rising by 3.9 points to 48.0 to be 14.4 points above the low of February 2009.

Sales and new orders fell only slightly in the month and inventories of finished goods were run down at a significantly slower pace in August, while the decline in employment eased.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: “Conditions in the services sector continued to improve in August, despite the Australian PSI® remaining below the key 50 point separating expansion from contraction.

“Companies surveyed cited benefits from improvements in consumer and business confidence, business investment, and housing sector conditions, illustrating the continuing role of monetary and fiscal stimulus in supporting the economy.

“While the improvement in services sector conditions is welcome, it is not clear whether the expansion in activity will survive the winding down of the stimulus, let alone a rise in interest rates. The answer to the question as to whether the rebound in activity is self sustaining is uncertain and therefore authorities should proceed with great caution,” Mrs Ridout said.

Commonwealth Bank Senior Economist John Peters noted, “It is heartening to see conditions in the services sector regaining strength, with the underlying trend rising to near expansionary territory in recent months as stimulatory fiscal and monetary policy measures percolate through the economy.

“This trend improvement in the Australian PSI® in recent months lines up with a cluster of recent economic data signalling the continuing resilience in the Australian economy, in stark contrast to the deep recessions prevailing in the advanced G7 economies and fellow G20 economies. Particularly heartening news in the latest Australian PSI® is the fact that the sales and new orders categories have continued to trend higher to near expansionary territory. Moreover, the decline in the services sector employment index eased to its slowest pace in 14 months (index rose to 48.6), further bolstering the view that the peak in unemployment is likely to be 7% or less this cycle,” Mr Peters noted. 

• Activity rose in four sectors in August, although growth was only modest in personal & recreational services; retail trade; and transport & storage. 
• The sales sub-index rose 1.6 points in August to 49.1. Accommodation, cafés & restaurants reported the strongest growth in August, following heavy declines in the preceding two months. 
• New orders improved in the month, with the sub-index increasing by 1.4 points to 47.1. 
• The decline in services sector employment eased to its slowest pace in 14 months in August, with the seasonally adjusted sub-index rising by 3.2 points to 48.6. 
• Inventories of finished goods were run down at a significantly slower pace in August, with the seasonally adjusted sub-index increasing 11.1 points to 47.9. 
• Supplier deliveries to services firms also fell at a more moderate rate in August; the seasonally adjusted sub-index lifting 8.6 points to 47.0.

Download the full August 2009 Australian PSI®.


Further Comment:
Heather Ridout, Ai Group: (02) 9466 5504
John Peters, Commonwealth Bank of Australia: (02) 9117 0112

Media Inquiries:
Tony Melville, Ai Group: (02) 6233 0700
Steve Batten, Commonwealth Bank of Australia: (02) 9378 2504


Background:
The Australian Industry Group - Commonwealth Bank Australian Performance of Services Index (Australian PSI®) is a leading indicator of services activity in the Australian economy. The Australian PSI® is a seasonally adjusted national composite index based on the diffusion indices for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI® reading above 50 points indicates that services activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. Results are based on a sample of around 200 companies.