Australian PSI®: Services sector in the black in October

The services sector was in the black in October, driven by a lift in sales and new orders, according to The Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®). The seasonally adjusted Australian PSI® rose by 5.5 points to 54.8, above the 50.0 level separating expansion from contraction.

The rise in activity was underpinned by ongoing demand for retail goods and personal & recreational services. The boost in activity broadened in October, with seven out of nine sub-sectors growing, compared with five in September and four in August. However, the expansion was dampened by the 17th consecutive monthly fall in employment.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: "The move into positive territory in the services sector reflects improved demand for services driven by a marked lift in consumer confidence. Housing related sectors such as finance & insurance, and property & business services, are also experiencing a period of growth.

"This improvement is further evidence of the positive impact monetary and fiscal policy stimulus measures continue to have on the economy, and especially the services sector. Consolidating the improvement remains the challenge with the underlying strength of private demand still uncertain", Mrs Ridout said.

Commonwealth Bank Senior Economist John Peters said, “The latest Australian PSI® outcome showing the headline index moving into expansionary territory and to its highest level for 19 months is positive news. The improvement in underlying services sector conditions in October dovetails with other economic data suggesting that the economy is gradually picking up momentum after sidestepping a recession in 2009.

“We are particularly heartened by the movement of leading indicators such as new orders, inventories and supplier deliveries which have trended higher into expansionary territory. These affirm the effectiveness of the prompt stimulatory policy measures taken by the RBA and the Federal Government”, Mr Peters said.

Australian PSI® Key Findings for October: 

• The seasonally adjusted Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®) rose by 5.5 points to 54.8, its highest level in 19 months. 
• Services sector activity was driven by a rise in new orders and increases in sales, inventories and supplier deliveries. 
• Growth broadened across the sectors in October, seven out of nine sub-sectors grew compared to five in September and four in August. 
• Growth was strongest in the retail trade; personal & recreational services; and communication services sectors. 
• Businesses also cited improving market conditions in the property and infrastructure-related sectors. 
• Employment fell for the 17th consecutive month reflecting past weakness in activity, with the sub-index falling by 1.3 points to 48.6. 
• Sales of services rose strongly in October, while new orders increased for the third time in 2009. 
• After 16 months of falls, inventories of finished goods expanded in October.

Download the full October 2009 Australian PSI®.

Further Comment:
Heather Ridout - Ai Group (02) 9466 5505
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.