Australian PSI®: Services sector activity still falling

Activity in Australia's services sector fell again in April, the thirteenth consecutive month the index was below the 50.0 level that separates expansion from contraction. While activity was still slowing, encouragingly the pace of decline eased in April compared with March. The decline in new orders slowed in April, falling at their slowest rate since October 2008. The seasonally adjusted Australian Industry Group - Commonwealth Bank Performance of Services Index (Australian PSI®) rose 4.3 points to 39.8 in April.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: "The Australian PSI® readings for March and April provide some 'glimmers of hope' with the pace of decline easing and new orders in particular showing some upside. However, business conditions remain fundamentally weak across the sector. Material risks remain and with unemployment rising it is far too early to suggest the worst is behind us. We see current conditions being consistent with further falls in official interest rates," Mrs Ridout said.

Commonwealth Bank Senior Economist, John Peters, noted: "Ongoing soft services sector activity helps underscore the contraction in the non-farm economy since mid 2008. Sharply lower mortgage rates and the Federal Government's various stimulus packages, including the first home owners’ scheme should help put a floor under activity in the property and retail trade segments in the period ahead. Current weak services sector activity is consistent with other recent data showing that both business and consumers, but particularly consumers, are currently repairing their balance sheets by paying off debt and lifting savings rates. These trends will continue to present downside risks to services activity ahead.

"The latest weak Australian PSI® readings along with other recent weak indicators point to further RBA policy easing in the months ahead. We see another 25-basis point cut by the RBA in June which will take the cash rate to a likely cyclical low of 2.75%," Mr Peters said.

Australian PSI® Key Findings for April:

• The Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®) rose 4.3 points to 39.8 in April, still well below the 50.0 level that separates expansion from contraction. 
• Business conditions remained weak in the services sector for a 13th consecutive month, despite the rate of decline in activity moderating further. 
• The sales, new orders, stocks and deliveries sub-indexes continued to lift from the lows recorded in February. 
• Selling prices fell further in April, offsetting the benefits of a sharp deceleration in input cost growth. 
• An increasing number of services sectors reported a moderation in the rate of contraction in the month. 
• Activity fell in five states, with the rate of decline moderating in three. Tasmania was the only state to report growth in April. 
• Following annual seasonal reanalysis, each of the sub-indexes and composite indexes were revised.

Editors please note: The Australian PSI® is a measure of the rise or fall in the activity in the Australian services sector. It is not a measure of the level of services activity. 



Download the full April 2009 Australian PSI®.


Further Comment:
Heather Ridout, Ai Group: (02) 9466 5504
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.