Services sector continues to grow at faster speed


Services sector stays in positive territory in September with latest Australian Performance of Services Index down 1.8 points to 50.3, indicating activity continued to expand in the month

Services sector continues to grow at faster speed
Services sector continues to grow at faster speed
October 5, 2011

The services sector stayed in positive territory in September with the latest seasonally adjusted Australian Industry Group-Commonwealth Bank Australian Performance of Services Index (PSI) down a slight 1.8 points to 50.3, indicating activity continued to expand in the month.

Activity expanded in five of the nine services sub-sectors with the strongest growth seen in finance and insurance and communication services.

However, activity in the retail trade sub-sector remained depressed. Respondents noted uncertainty and low consumer confidence levels continue to be hindering economic activity throughout the services sector.

In three-month-moving-average terms, the Australian PSI has now been around the critical 50 point level separating expansion from contraction for five consecutive months.

Australian Industry Group CEO Heather Ridout says: "The services sector toughed it out in September with five consecutive months of readings close to or above 50, suggesting that, overall, activity has stabilised following a prolonged period of decline.

"Encouragingly, sales and new order levels have increased in three of the past four months underpinning the performance of the sector.

"However, major sub-sectors such as retail remain weak, which is a real concern, reflecting cautious consumers and soft commercial construction activity."

Commonwealth Bank Senior Economist James McIntyre adds: "The September Australian PSI result holding above 50 is a sign of the resilience of some sectors of the Australian economy in the face of the current difficult international backdrop.

"The economy is caught between the sentiment and financial market impacts stemming from Europe’s sovereign debt crisis, and the longer-run positive impacts of Asia’s emergence and development.

"The impacts of these trends are apparent on the services sector. Consumer-related sectors, such as retail and personal services, weakened as shell-shocked consumers exercised caution.

"Meanwhile, conditions in business-related sectors, such as property and business services, and transport and storage, were stronger, as the mining boom benefits trickle through the economy.

"A second consecutive month of expansion in the Australian PSI is a welcome development. Though there were some signs of deterioration in September, sales (52.2) strengthened, but the expansion in new orders (50.7) was trimmed back. The weaker employment index (47.8) suggests current labour market caution by employers may continue whilst global uncertainties remain elevated. This may be assisting the inflation outlook, with the expansion in wages (62.2) more moderate in September.

"Whilst the situation in Europe will have some impact on the Australian economy, we expect the record terms of trade and mining investment will provide a large degree of support to the Australian economy over the period ahead."

Australian PSI key findings for September:

  • Activity expanded in five of the nine services sub-sectors in September, with the index boosted by strong growth in the finance and insurance and communication services sub-sectors
  • Sales in the services sector rose in September, and have risen in four of the past five months
  • New orders expanded further in September, and have now been around the critical 50-point level for six consecutive months
  • The employment component of the Australian PSI fell back to 47.8 in September
  • Inventory levels in the services sector fell slightly in September with the sharpest declines reported by the retail trade and personal and recreational services sub-sectors
  • The input prices index increased by 1.9 points to 62.8 in September, and is now in line with the average level seen since the start of 2009. The average wages index decreased by 4.5 points to 62.2.

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