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Services sector drops further in September: Aust PSI

07 October, 2014

A continued decline in engineering construction and manufacturing activity compounded another mediocre month for the services sector.

The Australian Industry Group Australian Performance of Services Index (Australian PSI) dropped 4.0 points to 45.4 points in September – the seventh consecutive month of contraction for the services sector (index readings below 50 points indicate a contraction in activity, with the distance from 50 indicative of the strength of the contraction).

With the exception of employment (up 4.0 points to 52.1), all activity sub-indexes were below 50 points in September, with both the sales (down 9.9 points to 41.5) and new orders (down 8.4 points to 44.0) sub-indexes falling sharply after promising results in August.

Five of the nine services sub-sectors showed mild expansion this month, although this was largely confined to consumer-oriented sub-sectors; while property and business services (up 2.2 points to 50.8) stabilised, other business-oriented services sub-sectors reported reduced workflow amid lower engineering construction and manufacturing activity.

"The drop in the Australian PSI in September calls into question the momentum that had been gathering over the previous couple of months," Willox said

"The sharp falls in sales and new orders underlines the fragility of the economy in search of sources of growth beyond the minerals and energy sector.

"That said, some more encouraging signs are evident: the retail sub-index entered into positive territory for the first time in over three years, other household-facing sub-sectors such as hospitality and personal and recreational services also expanded, and the employment sub-index recovered some of the ground lost after six months of contraction.

"With commodity prices falling and global markets displaying greater volatility, it has become more important that we develop new areas of strength in the domestic economy."

Australian PSI – Key Findings for September:

  • The Australian PSI dropped 4.0 points to 45.4 in September and has now contracted for seven consecutive months.
  • Both the sales (down 9.9 points to 41.5) and new orders (down 8.4 points to 44.0) sub-indexes dropped sharply this month after mild expansion in August.
  • Services businesses continued to reduce supplier deliveries and stock levels, with the supplier deliveries sub-index declining marginally by 0.3 points to 44.9 in September, and the stocks (inventories) sub-index slipping 4.4 points to 42.5.
  • The selling prices sub-index continued to contract (up 2.4 points to 48.4) – services businesses remain under significant margin pressure as wages (54.2) and other input costs (58.5) rise.
  • The retail trade sub-index in the Australian PSI expanded mildly for the first time in more than three years, rising 2.5 points to 52.0. Wholesale trade, which last expanded in February 2011, dropped 0.7 points to 42.7.
  • The finance and insurance sub-sector expanded for a 12th consecutive month but at a slower pace (down 5.8 points to 54.8) – perhaps reflecting weak local share market performance.
  • Health and community services contracted for the first time in 15 months, falling 7.2 points to 45.5.

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