Service sector showing weakness

A DROP in sales and new orders saw the services sector contract further in July according to the latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®).

The Australian PSI® recorded 46.5 in July - 2.3 points lower than the previous month (readings below 50 represent a contraction in activity with the distance from 50 indicative of the strength of the decrease).

Only three sub-sectors - health & community services, finance & insurance and accommodation, cafes & restaurants - expanded in July. Respondents cited economic uncertainty, weak activity in manufacturing and construction, the carbon tax and the high dollar as factors negatively influencing sales and activity levels in the month.

Australian Industry Group Chief Executive, Innes Willox, said: "The fall in the Australian PSI® for July highlights the fragility of business conditions in the services sector which is struggling to build momentum. Despite last month's more positive results in sales and new orders, those indicators, along with employment, contracted in July," Mr Willox said.

"The overall index has had a habit of underestimating the resilience of service activity across the economy," said a Reuters report on the release.

"It was in contractionary territory for all of the first quarter, yet official figures on gross domestic product show actual household spending on services was well above expectations."

Commonwealth Bank Senior Economist, John Peters said: "The latest Australian PSI® outcome is disappointing, and particularly the fact that only three of the nine sub-sectors were expanding in July, down from five sub sectors in June."

"The latest services sector snapshot mirrors the multi-speed growth rates being posted across industries and regions around the nation at present as the economy undergoes significant structural adjustment due to the high Australian dollar."

"On a brighter note, the lagged impact of the aggregate 1.25% cut in interest rates by the RBA since October 2011 has yet to fully impact the economy and should ultimately give some boost to most sectors in late 2012," Mr Peters said.

Australian PSI® Key Findings for July:

  • The latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell 2.3 points to 46.5 in July (readings below 50 represent a contraction in activity with the distance from 50 indicative of the strength of the decrease).
  • The result was largely due to a drop in sales (48.5) and new orders (46.6).
  • Employment was also weaker - with the employment sub-index down 4.8 points to 44.3.
  • Of the three sub-sectors to record an expansion in activity - finance & insurance was the strongest performer in July (55.5).
  • Wholesale trade was the weakest performing sub-sector (36.0).
  • Stock levels were broadly unchanged after contracting for most of the year.
  • Input prices lifted again in July to 62.4.

Topics:  australian industry group, cba, service sector




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