Australian PSI®: Services sectors slow down as year ends

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell by 5.0 points to 48.7 in December, marking a first month of decline for Australia's services industries following four months of positive conditions (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase)

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Ai Group Chief Executive, Innes Willox, said: "December's Australian PSI® indicates a weakening of service sector performance as 2019 ended, bringing a halt to a four-month period of modest expansion. The business & property services and the health & community services sectors both fell, offsetting a strong expansion in finance & insurance and more mild growth in the retail trade & hospitality and personal, recreation & other services sectors. Logistics services were broadly stable in December. The lift in services sector jobs indicated by a fifth consecutive month of gains in the employment index of the Australian PSI® is somewhat encouraging but may be tested in coming months by the sharp drop in new orders in December and as the impacts of bushfires flow through to consumer spending and business activity," Mr Willox said.

Australian PSI® – Key Findings for December:

• The Australian PSI® indicated expansion in three sectors, stability in one sector and contraction in two sectors in December (trend – see table below). Among business-oriented sectors, finance & insurance continued to lead the way (up 0.5 points to 62.4) while consumer-oriented sectors were led by retail trade & hospitality (up 1.2 points to 56.1).
• Among the activity indexes in the Australian PSI®, sales were broadly stable (down 2.8 points to 49.6) while new orders fell into contraction (down 10.3 points to 48.2). Inventories (down 4.4 points to 43.1) and deliveries (down 7.9 points to 42.8) also both declined in December after remaining stable in the previous month, but the employment index stayed positive (down 0.2 points to 54.2).
• The input prices index moderated in December (down 3.1 points to 60.0), indicating a slight deceleration in input pricing pressures, while the average wages index also dropped 4.2 points to 54.5.
• The selling prices index, falling or stable for 17 months prior to November's modest expansion, fell back into contraction in December (down 5.6 points to 46.7), with several respondents reporting their inability to meaningfully increase their selling prices is constraining profits and profitability in their business.
• Capacity utilisation rose to a record high of 83.8% of existing capacity across the services sectors in December, suggesting investment in new capacity is being delayed but may soon be needed for expansion in order to meet any demand growth in 2020.

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Results above 50 points indicate expansion. All indexes for sub-sectors in the Australian PSI® are reported in trend terms (Henderson 13-month filter).
 

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Background: The Ai Group Australian PSI® is a leading indicator of services activity in the Australian economy. It 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 each month.

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