Australian PSI: Services Growth Softens In July

AIG Services IndexThe Australian Industry Group Australian Performance of Services Index (Australian PSI) fell 9.4 points to 53.6 in July, indicating a slowing of growth from June's record high (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase).

Ai Group Chief Executive, Innes Willox, said: "Australia's services sectors continued to expand in July, but appear to be slowing as we move into the new financial year. This slower pace is particularly apparent in jobs growth, which has been relatively strong until now. The benefits of healthy activity in the construction, manufacturing and mining sectors are flowing through to the more business-oriented services sectors, but we are still seeing weaker activity levels in the sectors that rely on discretionary consumer spending. Rising capacity utilization suggests greater investment may be needed to enable further expansion. However, higher input prices, and especially energy prices, are still eating into business incomes and potentially their ability to invest for expansion, across all sectors," Mr Willox said.

Australian PSI – Key Findings for July:

• The Australian PSI has indicated positive conditions (results above 50 points) for 17 months, and stable or expansionary results for 22 months.

• Four of the five activity sub-indexes in the Australian PSI expanded in July (see table below). New orders continued to grow but at a slower pace (down 12.4 points to 53.3) while sales moderated but remained in expansion (down 4.7 points to 55.2). Supplier deliveries fell from strong growth into contraction (down 17.3 points to 47.5), reversing June's gains.

• Employment marked a 14th month of expansion, but growth eased (down 10.5 points to 53.4) with variable results across the services sub-sectors.

• Six of the nine services sub-sectors expanded in July (trend). Once again, predominantly business-oriented sub-sectors such as property (up 0.1 points to 63.4), finance (down 0.7 points to 62.5) and transport (down 4.3 points to 52.1) reported steady demand from customers in construction and manufacturing, while the very large health sector also reported positive results (up 1.8 points to 65.1).

• Consumer-oriented sub-sectors had mixed results in July, with personal & recreational services increasing (up 2.9 points to 64.0) while retail trade was stable (up 1.3 points to 50.2) and hospitality returned to contraction (down 0.8 points to 42.2).

• The input prices sub-index eased by 6.6 points to 60.0, but respondents continued to report that energy prices and business compliance costs are dragging on investment capability. Wages growth also eased but remained elevated (down 2.2 points to 62.8).

• Selling prices balanced in July (down 2.3 points to 50.6) after six months of soft growth, as businesses have been unable to implement substantial price rises despite increasing input costs.

* All sub-sector indexes in the Australian PSI are reported in trend terms (Henderson 13-month filter), to better identify the trends in these volatile monthly data.

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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