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Services sector expands for first time in a year: Australian PSI

04 March, 2015

The services sector expanded for the first time in 12 months in February, with the Australian Industry Group Australian Performance of Services Index (Australian PSI) improving by 1.8 points to 51.7.

Three of the five activity sub-indexes expanded (i.e. above 50 points) in February, with the new orders (up 2.8 points to 53.5) and employment (up 2.8 points to 54.6) sub-indexes expanding for a second consecutive month, while supplier deliveries also expanded (up 4.9 points to 51.5) after eight months in negative territory.

However, sales across services businesses contracted this month (down 2.2 points to 48.6) after a brief expansion in January, while stock levels (up 2.1 points to 48.1) spent a ninth consecutive month in contraction.

Once again, only two of the nine services sub-sectors showed expansion. Health & community services (up 1.4 points to 59.5) grew for a fourth month, while finance and insurance services added to its sharp 11-point climb in January to reach a historical high (up 12.4 points to 68.9). This likely reflected the boost to the sector from the RBA’s interest rate cut in early February, including the strong performance of the share market.

Ai Group Chief Executive, Innes Willox, said: "The lift in services activity in February and the gradual recovery in momentum in the services sector over recent months is an encouraging, though still tentative indication of growth beyond the mining boom.

"However, the pattern of growth remains patchy. Health, community and financial services are enjoying strong conditions and the pick-up in residential building activity over the past year and a lower Australian dollar have boosted demand for certain services (e.g. tourism, real estate).

"Yet, more generally respondents to the Australian PSI continue to raise concerns about weakness in the local economy and the ongoing fragility of consumer and business sentiment.

"The rapid decline in mining construction, continuing difficulties in the manufacturing industry, and a general lack of willingness to invest by both the public and private sectors, are dampening demand for business services such as accounting, legal, personnel and administrative services."

Australian PSI – Key Findings for February:

  • The Australian PSI expanded for the first time in 12 months in February, rising 1.8 points to 51.7.
  • The new orders (up 2.8 points to 53.5) and employment (up 2.8 points to 54.6) sub-indexes expanded for a second successive month, while supplier deliveries ended eight months in contraction (up 4.9 points to 51.5).
  • Sales across services businesses contracted in February (down 2.2 points to 48.6) and stock levels (up 2.1 points to 48.1) fell for a ninth month.
  • The selling prices sub-index contracted marginally (up 1.1 points to 49.2), leaving services businesses’ margins under intense pressure amid ongoing increases in wages (up 1.0 point to 57.7) and other input costs (up 3.1 points to 64.8).
  • The retail trade sub-index remained broadly stable (down 0.3 points to 49.7), while wholesale trade (up 0.3 points 47.2) spent a 40th month in contraction.
  • Backing up its sharp 11.2-point rise in January, the finance & insurance sub-sector reached a historical high in February (up 12.4 points to 68.9) – likely reflecting the boost of the RBA’s interest rate cut. The large health & community services sub-sector (up 1.4 points to 59.5) was the only other sub-sector to expand in February, continuing a long-term trend to expansion.


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