The AIG Performance of Services (PSI) for May is out and shows a decent rebound, though still languishing well into recession territory:
The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index
(Australian PSI®) shows that the services sector contracted again in May, but at a slower pace than in April.
■ The Australian PSI® improved by 3.9 points in May, but at 43.5 remains well below the critical 50 point level separating expansion from contraction (readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decline).
■ Reports of weak trading conditions were widespread across service sub-sectors and states. Only the finance & insurance and personal & recreational services sub-sectors recorded expanding sales, new orders or employment levels (readings above 50 points). No states recorded growth in activity levels across the sector.
■ Consistent with these soft conditions and the latest weakening in Australian inflation (with headline inflation just 1.6% p.a. in the March quarter), the average selling prices index is now at its lowest level since the series began in 2007.
So, some recovery from the April plunge but the internals remain very worrying. The sectors report shows that anything exposed to the household sector is getting worse not better:
And the leading new orders component remains deeply in the red:
In better news, the big move up was in sales and capacity, which erased its entire April collapse, suggesting some of the weakness was statistical, perhaps owing to Easter:
But the broader readings of the index are that activity remains under advanced pressure and the fact that the headline index is still in trouble despite the big bounce in the sales reading shows weakness is still a clear and present danger.
Finally, I’ll add that this index can be volatile so we’ll need to see a decisive shift in the trend before embracing greater confidence. Nothing here to hold up the RBA.
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.
