So, hows that mining boom transition going?
Australia’s biggest share of the economy – services – suffered a “subdued” December, according to the monthly AIG PSI (performance of services index) falling 1.9 points to 46.3 points, now falling three months in a row:
AIG estimate that the ABS household consumption measure is now trickling at 2.5% in the December 2015 quarter.
The internals:
Four of the five of activity sub-indexes in the Australian PSI® were below 50 points in December, with sales and new orders especially weak. Stocks (inventories) were stable.
Just two of the nine services sub-sectors in the Australian PSI® grew in December; health and community services plus personal and recreational services. Hospitality services (cafes and restaurants) were stable. Communications remains the weakest services sub-sector.
Interestingly, the survey doesn’t gel with the recent Australian Retailers Association “frenzied spending” comminuque over Christmas, notably outside NSW:
Respondents to the Australian PSI® said consumer spending was selective in December, with early retail discounting before Christmas biting into competitors’ sales. Outside NSW, retail and wholesale respondents described pre-Christmas sales as relatively flat for this time of year. Hospitality was steady in December, with conditions stable on average nationally.
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And another indication that the only cylinder firing in the less than robust post-mining boom economy is the housing sector, with “slower activity in commercial construction, infrastructure, manufacturing (especially auto) and mining is reducing demand for M&A, business finance and consulting services.”
This chart is the clincher for me – or maybe the “retail sphincter” that is going to hurt in 2016. Input prices continue to climb as the lower AUD increases imported goods and service costs, while “The low-inflation environment and fierce competition makes it harder to pass on these price increases, which is squeezing margins for wholesalers and retailers.”
And hence – declining wage growth, because something has to give, with the lowest levels seen since June 2009:
Thankfully the construction boom will save the economy.