Services PMI screams recession

The Australian Industry Group’s Services PMI, the Performance of Services Index (PCI) has fallen deeper into recession in July:

The latest seasonally adjusted Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell 2.1 points to 39.4 in July.

• This is the lowest level seen in the Australian PSI® since March 2009 and, apart from the GFC-related downturn, is the first time the index has fallen below the 40 point mark.
• The monthly decline in the Australian PSI® was driven by sharp falls in sales and new orders across the sector.
• Businesses reported that recent interest rate cuts and the depreciation of the Australian dollar are yet to have a significant impact on activity in the services sector.
• In particular, the retail trade index fell 6.3 points to 41.3 in July and has been below the 50 point level separating expansion from contraction for 10 of the past 12 months.
• One in five businesses also noted that the most important factor affecting activity in July was the uncertainty associated with the upcoming federal election.
• On top of the tough demand conditions facing the sector, the input prices index is at its highest level in 10 months while the selling price index fell back in July to its third lowest reading since the series started in 2007.

The weakness was broad based:

Falls were driven by a crash in sales:

In new orders:

And inventories:

Meanwhile margins are getting squeezed between weak selling prices and rising input costs on the weak dollar:

Employment held up for the month but if this persists it won’t.

Elections do not do this to an economy. This is the gathering headwinds of falling mining investment, rising unemployment and tradable prices. It will not be easy to turn around.

Psi Report July 2013 Final