Australian PSI®: Services Sector Activity Expands after 14 Months Contraction

Services sector activity expanded slightly in June after 14 consecutive months of contraction. The seasonally adjusted Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®) for June rose by 10.3 points to 50.2, lifting marginally above the 50.0 level separating expansion from the contraction.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: “The June Australian PSI® is further encouraging news on top of the recent strong retail trade figures for May. The Australian PSI® results suggest that services sector activity strengthened more broadly in June on the back of rising consumer confidence, low interest rates and the Government’s cash stimulus.

“The return to growth in sales and new orders, albeit at a modest pace, is particularly encouraging and is a clear and positive sign that the sector is responding to improvements in consumer and home buyer confidence. The broadening base of the improvement, with solid gains in finance & insurance and more modest increases in retail trade; accommodation, café’s & restaurants and health & community services also suggests that some of the clouds around the outlook for services are lifting.

“Whether this nascent return to growth is sustained will depend on broader economic trends and how consumers respond to higher unemployment over coming,” Mrs Ridout said.

Commonwealth Bank Senior Economist, John Peters, noted, “Improving conditions in the services sector are consistent with other recent economic news which suggests that the economy may well sidestep a severe recession in 2009 despite the negative headwinds from the global economic meltdown buffeting the local economy.

“After the positive QI GDP number, the rebound in the June Australian PSI® lines up with a string of relatively positive economic data which have hit the deck in recent weeks which suggest that Australia’s economic downturn is not going to be as grim and debilitating as those in the G7 economies and fellow G20 economies. A modest upturn is likely late in 2009. The pick-up in the key leading component of the Australian PSI® – new orders – is particularly encouraging. This brighter outlook has been driven by sharply lower mortgage rates and the Federal Government’s stimulus packages, including cash handouts, tax cuts and the first home owners’ scheme, which have boosted activity, particularly in the retail, wholesale trade and property sectors,” Mr Peters said.

Australian PSI® Key Findings for June: 

• The seasonally adjusted Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®) rose by 10.3 points 50.2.
• Recent monetary and fiscal stimulus measures were cited as having a positive influence on conditions.
• Sales and new orders both expanded, following long periods of contraction. The sub-indexes for employment, inventories and supplier deliveries also improved in the month.
• The improvement in the sector was broadly-based, with four sectors reporting stronger activity in June and the pace of decline easing in another three.
• Activity expanded in three states: Victoria; Western Australia; and Tasmania.

Download the full June 2009 Australian PSI®.


Further Comment:
Tony Pensabene, Ai Group: (03) 9867 0258
John Peters, Commonwealth Bank of Australia: (02) 9312 0112

Media Inquiries:
Tony Melville, Ai Group: (02) 6233 0700
Bryan Fitzgerald, Commonwealth Bank of Australia: (02) 9378 2663


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.