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Australian PSI®: Services sector builds on growth in June 2019

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell slightly by 0.3 points to 52.2 in June 2019. This second month of positive results for the services sector following four months of contraction suggests trading conditions are gradually returning to a more usual – and comfortable – range after several months of disappointment (results below 50 points indicate contraction, with the distance from 50 points indicating the strength of the decrease).

Ai Group Chief Executive, Innes Willox, said: “The services sector recorded its second month of growth following the four-month slump to the end of April (2019). Six of the eight service sub-sectors reported a lift in performance in June while for both the retail and transport & storage sub-sectors, the pace of contraction eased somewhat. Sales were up in the month although this was in part due to further discounting – continuing an extended period of price contraction across the sector. This maintained pressure on margins with input prices and wages both rising – although more slowly than in the previous month. While service businesses experienced an encouraging lift in new orders in June (2019), this was in part due to the anticipation of a tax-cut linked lift in demand. At the same time the loss of momentum in the labour market, with employment across the sector moving into contraction, points to the importance of the further income tax measures announced in the federal budget,” Mr Willox said.

Australian PSI® – Key Findings for June 2019:

  • The Australian PSI® indicated expansion in five of its eight sectors in June 2019. Among business-oriented sectors, wholesale trade reported the strongest results (up 2.5 points to 57.8), while transport & storage marked a full year of negative conditions (up 0.2 points to 41.8). Three of the four consumer-oriented sectors expanded, led by the large health, education & community services sector (up 3.6 points to 57.6). Retail trade’s decline continued for a seventh month, but the rate of decline has eased each month following January 2019’s low (up 2.7 points to 47.1).
  • Three of the five activity indexes in the Australian PSI® were positive in June 2019, with new orders consolidating May 2019’s return to expansion (up 1.2 points to 56.8). Respondents pointed to the end of the Federal election campaign and lower interest rates among reasons for the sales index returning to expansion for the first time this year (2019) (up 4.7 points to 53.1).
  • The input prices index eased by 2.3 points to 57.1 in June 2019, while the decline in selling prices accelerated again (down 2.3 points to 45.4). Weak selling prices were reported across both business-oriented and consumer-oriented sectors.
  • The average wages index slowed by 5.0 points to 57.3 in June 2019, indicating an easing in wage pressures across the services sectors.

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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