Services sector slows marginally

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell by 0.9 points to 52.1 in September 2017 – a seventh consecutive month of expansion, albeit at a marginally slower pace than in August 2017 (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: “Our big services sectors are doing reasonably well at present, but growth is not as broad-based as we would like. Some big variations in conditions are still apparent across sectors and across states. The more business-oriented sub-sectors including property & business services, finance & insurance services and communications services noted positive demand coming from the construction and mining sectors, predominantly in the eastern states.

“In contrast, respondents in retail trade and hospitality services are reporting reduced spending by consumers due to a mix of increased household electricity costs, flat income growth, and relatively poor consumer confidence. Businesses in Western Australia still appeared to be suffering tougher conditions in September 2017 than those in the eastern states.

“Across all of the services sub-sectors, input prices remained a key source of frustration, with rising energy costs putting pressure on margins across the board. These cost increases are proving difficult to pass on in the current environment of weak background inflation and reluctant consumer spending (perhaps ironically caused in part by householders’ own energy cost increases), coupled with fierce online and offshore competition,” Mr Willox said.

Australian PSI® – Key Findings for September 2017:

  • All five activity sub-indexes in the Australian PSI® indicated growth in September 2017 with sales (down 0.6 points to 52.9), new orders (down 2.3 points to 51.9), employment (down 1.1 points to 51.4) and stocks (down 3.1points to 51.8) all growing at a slower pace than in August 2017.
  • Six of the nine services sub-sectors in the Australian PSI® expanded in September 2017, led by personal & recreational services (up 0.5 points to 62.9), finance & insurance (up 1.6 points to 63.7), communication services (up 1.3 points to 58.6) and health, education & community services (up 0.2 points to 52.5).
  • Reluctant consumer spending saw activity shrink in retail trade (down 1.5 points to 41.3), while the hospitality sub-sector fell to a record low (down 3.5 points to 35.7). Transport & storage slipped back into contraction (down 1.5 points to 48.7).
  • Input prices decelerated slightly in September 2017 (down 2.5 points to 56.8), with respondents continuing to single out high energy cost pressures across almost all sub-sectors. The wages sub-index weakened by 1.5 points to 56.2, indicating some relief from wage pressures relative to August 2017.
  • The sub-index for selling prices was almost unchanged at 47.4 – the lowest monthly result since November 2016.
  • Capacity utilisation fell from August 2017’s record high (down 4.3 percentage points to 77.1%), but remained just above the annual average (76.9%).

Source: Ai Group

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