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Australian PSI®: Services sector decline eases in April 2019

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The Australian Industry Group Australian Performance of Services Index (Australian PSI®) rose by 1.7 points to 46.5 in April 2019 – a fourth month of contractionary conditions for the services sector, but the third in which the rate of decline has eased (results below 50 points indicate contraction, with the distance from 50 points indicating the strength of the decrease).

Hospitality services stood out as the one bright spot of positive services sector activity in April 2019, climbing 2.5 points to 52.4 on the back of a boost from the month’s extended run of public and school holidays. This follows the weak results in March 2019 – the first time every sector in the Australian PSI® experienced contraction in trend terms since August 2010.

Ai Group Chief Executive, Innes Willox, said: “The services sector continued to struggle in the face of weak business and consumer confidence in April (2019). While hospitality services were boosted by an unusual concentration of holidays, the rest of the industry contracted in part as business and consumer spending slowed over the holiday period. Overall, sales, new orders and employment were all lower in April (2019) and many businesses discounted prices in tough market conditions. The further slump in the important services sector is a particularly concerning sign that the pockets of contraction in parts of the economy are spreading. Service businesses will be looking to the conclusion of the federal election and hoping the removal of uncertainty will help to turn around the current downwards drift,” Mr Willox said.

Australian PSI® – Key Findings for April 2019:

  • In trend terms, the Australian PSI® indicated contraction across all business-oriented sectors in April (2019), and all consumer-oriented sectors with the exception of hospitality (up 2.5 points to 52.4). Retail trade’s continued decline marked its weakest result since June 2012 (down 0.8 points to 37.7).
  • One of the five activity indexes in the Australian PSI® was broadly stable in April (2019) – finished stocks (inventories) climbed 4.6 points to 49.4 – while the remaining four contracted. While the contraction in the sales index eased significantly (up 10.2 points to 48.7) and the rate of decline in new orders also slowed (up 2.3 points to 44.6), employment dropped back into contraction after one month in positive territory (down 6.2 points to 46.0).
  • The input prices index recorded a fourth consecutive month of decelerating costs (down 1.0 point to 58.0), while the rate of decline in selling prices accelerated (down 2.7 points to 42.1). The number of services businesses able to increase prices has fallen in recent months as competition from overseas sellers has increased, wages growth has slowed and consumer discretionary spending has tightened.
  • The average wages index fell 10.9 points to 48.2 in April (2019), indicating a fall in wage pressure across the services sectors. This was the lowest monthly result recorded in this data series, and only the second time average wages growth has contracted in the Australian PSI® (the previous occurrence was 49.4 points in July 2016).

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.

Source: Ai Group

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