The services sector expanded for the first time in 12 months in February, following generally stable conditions in January. The seasonally-adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI®) improved again by 1.8 points to 51.7 points in February. Much of this growth was concentrated in the health and community and financial and insurance services sub-sectors.
• The three-month moving average for the Australian PSI® also increased to 49.7 points this month. Recent results from the Australian PSI® suggest growth in Australian demand for goods and services (as measured by the ABS in the National Accounts each quarter as ‘domestic final demand’) may have picked up slightly in the 2015 March quarter.
• Three of the five activity sub-indexes in the Australian PSI® expanded (i.e. above 50 points) in February. Both the new orders and employment sub-indexes expanded for a second month while supplier deliveries also expanded after eight months of contraction. However, sales across services businesses contracted this month after a brief expansion in January while stock levels contracted for a ninth consecutive month.
• Two of the nine services sub-sectors showed expansion this month. The very large health and community services sub-sector (59.5 points, three-month moving averages) expanded for a fourth month in February and the finance and insurance services sub-sector expanded again (68.9 points). All other services sub-sectors contracted in February.
• Although 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), respondents to the Australian PSI® continue to raise concerns about weakness in the local economy and ongoing fragile consumer and business sentiment. The rapid decline in mining construction, continued malaise in the manufacturing industry, and a general lack ofwillingness to invest by both the public and private sectors, are dampening demand for business services such as accounting, legal, personnel and administrative services.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
