The services sector slumped sharply in January

The Australian Industry Group Australian Performance of Services Index (Australian PSI) tumbled by 7.8 points to 44.3 in January, indicating a sharp contraction across the sector. This was the first contraction across the services sector since February 2017, and the lowest result in the Australian PSI since October 2014 (results below 50 points indicate contraction, with the distance from 50 points indicating the strength of the decrease).

Ai Group Chief Executive, Innes Willox, said: "The services sector slumped sharply in January following a period of slowing activity over the second half of last year. Sales fell away in January and new orders were also down despite widespread price discounting. The retail sub-sector recorded its weakest monthly result for over six years. More broadly, business-orientated sub-sectors once again underperformed the consumer-orientated sub-sectors which – with the clear exception of retailing – remained in positive territory. Business sentiment has fallen away as business conditions have slowed and as global and domestic risks have become more pronounced. The fall in services sector employment in January is disturbing and is a clear warning-light for the rest of the economy," Mr Willox said.

Australian PSI – Key Findings for January:

• The Australian PSI contracted sharply in January 2019 (down 7.8 points to 44.3), ending 22 months of positive conditions. It has been trending down since its recent peak in mid-2018.
• Four of the five activity indexes in the Australian PSI indicated contraction in January (see table below). Only inventories saw a mild increase (up 0.2 points to 51.7) as sales (down 13.8 points to 39.3), new orders (down 12.6 points to 45.4) and deliveries (down 11.6 points to 40.3) all fell into negative territory.
• Four of the nine services sectors expanded in January (trend), with property & business services being the only business-oriented sector to expand (up 0.2 points to 51.3). The wholesale trade sector reported firmly negative conditions (down 1.3 points to 43.3) with particularly weak sales, new orders and employment in January.
• The consumer-oriented services sectors all remained positive in January with the exception of retail trade, which fell a further 5.2 points to 39.9.
• The input prices index moderated by 3.6 points to 63.2 in January, with some respondents reporting increases particularly for energy and imported inputs. Meanwhile, the selling prices index contracted by 3.9 points to 47.0, with most sectors reporting stable or falling prices.
• The average wages index fell by 7.4 points to 55.2 in January, indicating decelerating wage pressures across the sectors. The average wages index has been trending down since a recent peak of 65.0 points in June 2018.

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

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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