APRIL 2013

Services sector slips deeper into the red in April

The latest seasonally adjusted Australian Industry Group/ Commonwealth Bank of Australia Performance of Services Index (Australian PSI) fell by 5.5 points to 44.1 in April, indicating contractionary conditions on average across the sector (index readings below 50 points signify contraction). This months fall in the Australian PSI reflected declines in sales, new orders and employment levels as businesses cut prices and costs in response to poor local demand. Businesses directly exposed to household spending are reporting relatively better trading conditions, with the hospitality, personal & recreational services, and health & community services sub-sectors all expanding in April. The rest of the services sector, however, contracted in April. The more business-oriented services sub-sectors reported that activity in April was hampered by: uncertainty surrounding the upcoming federal budget and election; state government spending cuts, (particularly in South Australia); reduced demand for business services from mining; and continued weakness in large parts of the manufacturing and construction sectors. The latter has had a particularly strong effect on the transport & storage sub-sector which reported its worst trading conditions since the survey started in 2003.

APR

65 60

Australian PSI

Key findings
60
Increasing

44.1

55 50 45 40 35

55 50
Diffusion Index

AUST

45
Decreasing

MAR

30

40 35 30 25

EUROZONE SERVICES INDEX

MAR

65 60

July 10

Oct 10

Apr 11

July 11

Oct 11

Jan 12

Apr 12

July 12

Oct 12

Jan 13

Apr 13

Jan11

Australian PSI

3 month moving average

46.4

55 50 45 40 35

EURO

Sectors
The interest rate cuts seen over the past 18 months appear to be starting to support activity in services sub-sectors that are directly exposed to household spending. In three-month-moving average terms (3mma), activity has risen across the hospitality, health & community services, and personal & recreational service sub-sectors for three consecutive months.* And despite slipping back in April, the 3mma activity index of the retail trade sub-sector has also picked up during 2013. On the other hand, the more business-oriented services sub-sectors such as transport & storage and communication services are yet to report any significant improvement in business conditions. The 3mma activity index of the transport & storage sector is at its lowest level since this sub-sector series started in 2003, underlying the weakness in demand for transport services from large parts of the manufacturing and construction sectors.
Wholesale trade Retail trade Accommodation, cafes and restaurants Transport and storage Communication services Finance and insurance

Decreasing

Increasing

FEB

30

MAR

65 60

UK SERVICES INDEX

Property and business services Health and community services Personal and recreational services Australian PSI

UK
0 10 20 30 40 50 60 70 80 90 100

52.4

55 50 45 40 35

Diffusion Index
(3 month moving average)

Mar 13

Apr 13

FEB

45 40 35 30 25

70 65 60 55

US

USA SERVICES INDEX

July 10

Oct 10

Jan11

Apr 11

July 11

Oct 11

Jan 12

Apr 12

July 12

Oct 12

Jan 13

Apr 13

On a seasonally adjusted basis, sales levels contracted in April after expanding in March. The sales component of the Australian PSI fell 7.3 points to 43.5 points. The monthly decline in the sub-index reflected solid falls in sales levels across the wholesale trade and transport & storage sub-sectors. This was partly offset by sales growth in the personal & recreational services and health & community services sub-sectors. Capacity utilisation in the services sector (which is not seasonally adjusted) fell by 2.1 points to 74.6%, which is broadly in line with the average level recorded since the start of 2010.

80 75
Sales

Diffusion Index

55 50

Capacity Utilisation % (Unadj.)

Sales and capacity

65 60
Capacity Utilisation

85

30

MAR

65 60 55 50

54.4

45 40 35

Supported by:

FEB

30

 On a seasonally adjusted basis, new orders fell further in April. The new orders sub-index fell by 5.2 points to 43.6 points. New orders for the services sector have been in contraction (below 50
Diffusion Index

60 55 50 45

Increasing

New orders

65

What is the AUSTRALIAN PSI?

The Australian Industry Group Commonwealth Bank Australian Performance of Services Index (Australian PSI) is a seasonally adjusted national composite index based on the diffusion indexes for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI reading above 50 points indicates services activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. More information can be obtained from the Ai Group website www.aigroup.com.au

points) since June 2012.

The fall in new orders was driven by especially weak activity in the

Jan11

Apr 11

Jan 12

Apr 12

Jan 13

July 10

July 11

July 12

Employment and wages

On a seasonally adjusted basis, the employment sub-index contracted

70 65
Average wages

Apr 13
Increasing

Oct 10

Oct 11

again in April after expanding in both March and February. The employment sub-index fell 4.1 points in April to 46.1. The fall in the sub-index reflected sharp employment reductions in the wholesale trade and transport & storage sub-sectors. These were partly offset by employment growth in the hospitality and health & community services sub-sectors. On a non-seasonally adjusted basis, the average wages sub-index rose by 1.9 points to 55.1 in April. This rate of increase is below the average level of wage growth recorded since the start of 2010. The relatively low level of the average wages sub-index in April reflected modest wages growth across the retail trade and health & community service sub-sectors.

60
Diffusion Index

55
Employment

Oct 12

transport & storage, wholesale trade and retail trade sub-sectors. Falling new orders in these sub-sectors was partly offset by growth in the personal & recreational services and health & community services sub-sectors. Businesses noted that falling new order levels stemmed from weakness in large parts of the manufacturing and construction sectors, as well as some moderation in mining sector activity.

35 30 25 20

Decreasing

40

50 45 40 35
Jan11 Apr 11 Jan 12 Apr 12 Jan 13 July 10 July 11 July 12 Apr 13 Oct 10 Oct 11 Oct 12
Decreasing

Sponsor Statement
Commonwealth Bank is delighted to be the sponsor of the Australian PSI and is pleased to be able to provide the expertise of our Chief Economist Michael Blythe as the key spokesperson for the Performance of Services Index. The Commonwealth Bank is one of Australia's premier service organisations and with the majority of the Australian economy being services based we believe this important piece of research will add real value to the industry. It will provide insights and information that have not previously been available. We look forward to continuing to work with the Australian Industry Group to enhance and develop the Australian PSI.

30

On a seasonally adjusted basis, stock levels (or inventories) in the

55 50
Diffusion Index Stocks

services sector declined for a sixth consecutive month in April. The stocks sub-index of the Australian PSI fell 4.5 points in April to 41.9 points. The fall in the index was driven by declining stock levels in the finance & insurance and communication services sub-sectors. The supplier deliveries sub-index decreased by 5.8 points this month to 44.1. The decline in deliveries to the services sector was driven by activity in the transport & storage and finance & insurance sub-sectors.

Deliveries

45
Decreasing

40 35 30 25

July 10

Oct 10

Jan11

July 11

Oct 11

Jan 12

July 12

Oct 12

Apr 11

Apr 12

Jan 13

Apr 13

Increasing

Stocks and deliveries

60

CONTACT

Input costs and selling prices

On a non-seasonally adjusted basis, the input prices index rose 9.4

80 75
Input Prices
Increasing

points to 62.8 in April, to be broadly in line with the average level recorded since the start of 2009. On a non-seasonally adjusted basis, the average selling prices index fell by 2.4 points to 43.3, remaining well below the critical 50 point level separating expansion from contraction. The average selling price index for the retail trade sector was below the critical 50 point level separating expansion from contraction for the 17th consecutive month in April, as businesses continue to lower prices in order to try to stimulate sales volumes. The low level of the average selling prices index is consistent with modest growth in CPI inflation more generally, with headline inflation recording just 2.5% p.a. in the March quarter of 2013 (and despite the one-off inflationary impact of the introduction of carbon emissions pricing during this period).

70 65
Diffusion Index

Innes Willox Chief Executive Ai Group 03 9867 0111 John Peters Senior Economist Commonwealth Bank of Australia Mobile: 0410 482 500 Markit Economics www.markiteconomics.com
The Australian Industry Group, 2013 This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced by any process or means without the prior written permission of The Australian Industry Group. Disclaimer The Australian Industry Group provides information services to its members and others, which include economic and industry policy and forecasting services. None of the information provided here is represented or implied to be legal, accounting, financial or investment advice and does not constitute financial product advice. The Australian Industry Group does not invite and does not expect any person to act or rely on any statement, opinion, representation or interference expressed or implied in this publication. All readers must make their own enquiries and obtain their own professional advice in relation to any issue or matter referred to herein before making any financial or other decision. The Australian Industry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of this publication.
AIG12997

60 55 50
Selling Prices

40 35 30
July 10 Oct 10 Jan11 Apr 11 July 11 Oct 11 Jan 12 Apr 12 July 12 Oct 12 Jan 13 Apr 13

25

AUSTRALIAN PSI**
April 2013 March 44.1 Sales 43.5 New Orders 43.6 Employment 46.1 Supplier Deliveries 44.1 Inventories 41.9 Input Prices 62.8 Selling Prices 43.3 Wages 55.1 Capacity Utilisation (%) 74.6
Australian PSI

2012 Monthly Change Direction Rate of Change Trend*** (Months) 49.6 -5.5 Contracting Faster 14 50.8 -7.3 Contracting From expansion 1 48.8 -5.2 Contracting Faster 9 50.2 -4.1 Contracting From expansion 1 49.9 -5.8 Contracting Faster 9 46.4 -4.5 Contracting Faster 5 53.4 9.4 Expanding Faster 121 45.7 -2.4 Contracting Faster 17 53.2 1.9 Expanding Faster 44 76.7 -2.1

Results are based on the responses of around 150 companies. Forward seasonal factors were updated in April 2013. * Since March, we have started to present the sub-sector indices in the Australian PSI as three-month moving averages, in order to more accurately identify the trends emerging from the monthly data, which are inherently volatile. ** Australian PSI data is seasonally adjusted for sales, new orders, employment, supplier deliveries, inventories and input prices. *** Number of months moving in current direction.

If you would like to participate in this survey, please send your details to economics@aigroup.asn.au

Supported by:

Decreasing

45