September Australian PSI®: Services Sector activity edges higher

Conditions in the services sector edged higher in September, underpinned by a rise in new orders and a lift in supplier deliveries, according to the Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®). The seasonally adjusted Australian PSI® rose by 1.3 points to 49.3 in September, falling just short of the 50.0 level separating expansion from contraction.

Rising demand for retail and wholesale trade goods boosted stronger department store sales and contributed to solid activity growth in both sectors. Employment remained broadly steady in September, supported by jobs growth in personal & recreational services; finance & insurance; and property & business services.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: “While it is clear that a level of confidence is returning to the sector, we shouldn’t get ahead of ourselves. The improvement is patchy and largely focused around sectors positively affected by the Government’s stimulus measures and low interest rates. These include retail trade, personal & recreational services and property & business services which have been the key drivers in the sector in the past two months.

“The impact of the fiscal stimulus measures on household demand has probably peaked and with a firm recovery in the services sector still some way off any additional winding back of stimulus measures would be premature. The measures should be maintained until a recovery becomes more entrenched. This need for caution is supported by the still fragile nature of activity in much of the services sector, particularly in finance & insurance, transport & storage, and health & community services,” Mrs Ridout said.

Commonwealth Bank Senior Economist John Peters said, “The latest Australian PSI® outcome showing a continuing improvement in underlying services sector conditions is gratifying and is consistent with other recent economic data confirming that the local economy dodged the recession bullet and is now in the early phase of a modest recovery in economic activity.

“It also cogently underscores the positive economic spin-off of prompt policy action by the RBA and the Federal Government via stimulatory monetary and fiscal policy settings put in place in the wake of the Lehman Bros collapse. Particularly positive news in the latest Australian PSI® is the fact that leading indicators such as new orders and supplier deliveries have trended higher into expansionary territory. From a labour market perspective, the services sector employment index posted its strongest reading since May 2008 of 49.9 – a hairs breadth from expansionary territory. This result buttresses our view that the peak in unemployment is likely to be 7% or less this cycle,” Mr Peters said.

Australian PSI® Key Findings for September

• The seasonally adjusted Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI®) rose by 1.3 points to 49.3, falling just short of the 50.0 level separating expansion from contraction.
• Growth was strongest in the retail trade sector and personal & recreational services.
• The strongest increases in sales were also in the consumer-based sectors of personal & recreational services; retail trade; and wholesale trade.
• Employment remained broadly steady in September with the highest employment reading since May 2008.
• Inventories of finished goods were run down at a faster pace in September.
• New orders increased in the month, and expanded for only the second time in 2009.
• Supplier deliveries to services firms rose for the first time since March 2008.
• Activity expanded in three states: Western Australia, South Australia and Queensland while remaining steady in Victoria.

Download the full September 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.