The Australian Industry Group (AIG) has released its Performance of Services Index (PSI) for June, which reveals that Australia’s services sector finished the year in expansion mode, recording a reading of 51.2, up 1.6 points from May:
The services sector expanded in June 2015 after two months of broadly stable conditions. The seasonally-adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI®) increased by 1.6 points to 51.2 points this month (readings above 50 points indicate expansion, with the distance from 50 points indicating the strength of expansion). Conditions across the services sectors have been broadly positive or neutral in the first half of 2015, with the Australian PSI® expanding (i.e. readings above 50 points) in three months and holding steady for three months (i.e. readings around 50 points).
Recent results from the Australian PSI® suggest growth in Australian demand for goods and services (as measured by the ABS in the National Accounts as ‘domestic final demand’) may have picked up modestly in Q2 2015.
Three of the five activity sub-indexes in the Australian PSI® expanded (i.e. above 50 points) in June. Both the sales and new orders sub-indexes returned to expansion after contracting for two months. Supplier deliveries also expanded following three months of contraction. However, services businesses reduced their stock levels for a 13th consecutive month and services employment also fell in June after expanding for five months.
Three of the nine services sub-sectors expanded in June. The finance and insurance services sub-sector expanded for a sixth consecutive month (68.9 points, three-month moving averages), while retail trade (52.0 points) and personal and recreational services (52.7 points) both expanded for a fourth month. All other services sub-sectors contracted in June, including the large health and community services sub-sector (46.7 points), which declined in June after seven months of solid expansion.
The improvement in services industry conditions this year has been mainly concentrated in consumer services. Increased housing market activity and very low interest rates are assisting some categories of consumer spending, although weak consumer confidence and household income growth are still constraining household expenditure in general. For the more business oriented services sub-sectors, weakness in business confidence, the economic outlook, and private and public investment, are still weighing on demand across a range of activities.
Worryingly, there has been a big (10.7 point) pull-back in service sector jobs, which are now in contraction (47.3 points).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
