gs

Increasing

Key Findings
60

Diffusion Index

55 40 50 35

Increasing Decreasing

THE SERVICES SECTOR SLIPS BACK IN OCTOBER Key Findings

Decreasing
50

Key Findings
55

Increasing

OCTOBER 2011
OCT
AUSTRALIAN PSI
70 65 60 55 50 45 40 35

60 45

KEY FINDINGS
Activity in the services sector eased back in October, with the latest

48.8

Diffusion Index

EUROZONE SERVICES INDEX

seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) falling 1.5 points to 48.8 (readings below 50 indicate a contraction in activity). In 3-month-moving-average terms, the Australian PSI has hovered around the critical 50 point level for six consecutive months. This suggests that overall activity in the services sector has stabilised in recent Australian PSI months following amoving average 3-month prolonged period ofdecline. Activity levels in the professional business service sub-sectors have improved over recent months while conditions in sub-sectors directly exposed to household spending (such as the retail trade and hospitality sub-sectors) remain subdued. Wages growth is reported to have eased back over the past couple of months though this has been partly offset by an increase in input price growth in the services sector.

55 40 25
Jan 09 Apr 09 July 09 Oct 09 Jan 10 Apr 10 July 10 Oct 10 Jan11 Apr 11 July 11

July 09

July 10

July 11

Apr 09

Jan 10

Apr 10

Jan11

Apr 11

Oct 09

Oct 10

Oct 11

Diffusion Index

35 30 25

50 45 40

Australian PSI

3-month moving average

Decreasing

Oct 11

Decreasing Increasing

60 45 30

SEP

30

Jan 09

Oct 09

Jan 10

Oct 10

Jan11

Apr 09

July 09

Apr 10

July 10

Apr 11

35 30 25

July 11

Oct 11

Australian PSI
Jan 09 Oct 09 Jan 10 Apr 09 July 09 Apr 10

3-month moving average

Oct 10 Jan11 July 10 Apr 11 July 11 Oct 11

SEP 48.0

70 65 60 55 50 45 40 35 30

Decreasing

Increasing

Wholesale trade Australian PSI Retail trade Accommodation, cafes & restaurants Transport & storage

3-month moving average

SECTORS
Activity expanded in four of the nine services sub-sectors in

Decreasing

Increasing

Personal & recreational services Communication services PSI Finance & insurance 0 10 Property & business services Health & community services 20 30 40 50 60 70 80 90 100

UK SERVICES INDEX

October, down from five in September. The professional business service sub-sectors have recorded the strongest business Wholesale trade conditions in recent months, with the property & business services and finance & insurance sub-sectors both Retail in October. expanding trade Activity in the retail trade sub-sector, however, remains subdued. ion, Ai & restaurants noted that uncertainty and low levels of cafes Group members consumer confidence continue to be key factors hindering Transport & storage throughout the services sector. economic activity In addition, slowing commercial construction activity and property ommunication services sales in recent months has contributed to weaker levels of activity. On Financethe other hand, a number of members have cited the benefits & insurance of mining sector activity on their business.

Decreasing

Increasing

Communication services Wholesale trade Finance & insurance Retail trade Property & business services Accommodation, cafes & restaurants Health & community services Transport & storage Personal & recreational services Communication services Wholesale trade PSI Finance & insurance Retail trade 0 Property & business services Accommodation, cafes & restaurants

MAR AUG SEP 52.9

Decreasing

Increasing

70 65 60 55 50 45 40 35

10

20

30

40

50

60

70

80

90 100

Diffusion Index September 11 October 11

Health & community services Transport & storage

erty & business services

Diffusion Index September 11 October 11

h & community services

Sales

Personal & recreational services PSI

65 60

& recreational services sector fell back in October. Sales in the services
The sales component of the Australian PSI declined by 4.4 points

SALES AND CAPACITY

PSI

10

20

30

40

50

60

70

Diffusion Index September 11

Capacity utilisation

80 90 100 85

USA SERVICES INDEX

Diffusion Index

to 47.8. The contraction in overall sales levels in the50 0 10 20 30 40 services sector was 90 60 70 80 primarily due to more subdued activity in the hospitality and Diffusion Index transport & storage sub-sectors. Capacity utilisation in the services sector (which is not seasonally October average adjusted) fell to 74.0%September 11is in line with the11 in October, and level recorded since the start of 2010. Reports of growing levels of spare capacity were common across the services sector in October, with seven of the nine service subsectors recording declines in capacity utilisation.

Sales
100
Diffusion Index

October 11 80
75

AUG MAR

30

Capacity Utilisation % (Unadj.) Capacity Utilisation % (Unadj.) Capacity Utilisation % (Unadj.)

55 50

65 45 60

Sales 40
55 35 50 65 30

Sales

85 70
Capacity utilisation

SEP 53.0

70 65 60 55 50 45 40

80 65 75 60 85 70 55 80 75 60 70

Jan 09

Apr 09

July 09

Oct 09

Jan 10

Apr 10

July 10

Oct 10

Jan11

Apr 11

July 11

40 35 30 25

55 50 45

Capacity utilisation

Oct 11

45 60 25 Sales

65

Diffusion Index

Sales Jan 10 Apr 10 July 10 Oct 10 Apr 09 July 09 Oct 09

Jan11

Apr 11

July 11

Oct 11

Jan 09

40 35 30

Supported by: 55
65 60

AUG MAR

35 30

85

New Orders

NEW ORDERS
New orders fell slightly in October. The new orders component of the Australian PSI decreased by 1.3

35 65 30 60

Increasing Decreasing

Diffus

Jan 09

Apr 09

July 09

Jan 10

Apr 10

July 10

Apr 11

July 11

Oct 09

Oct 10

Jan11

Oct 11

20 40

Diffusion Index

points to 49.4. The new orders sub-index has hovered around the critical 50 point level for seven consecutive months. This suggests that new orders in the services sector have stabilised in recent months following a prolonged period of decline. Growth in new orders has recently been highest in the professional business service sub-sectors and lowest in the sectors directly exposed to household spending (such as the retail trade and hospitality subsectors).

25 Employment 55
Jan 09 Apr 09 July 09 Oct 09 Jan 10 Apr 10 July 10 Oct 10 Jan11 Apr 11 July 11

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

Diffusion Index

70 45 65 40

Oct 11 Oct 11
Increasing Decreasing Decreasing Increasing

20 50

Employment 35 60
30 55 70 25 50
Jan 09 Apr 09 July 09 Oct 09 Jan 10

Average Wages

Employment

Apr 10

July 10

Oct 10

Jan11

Apr 11

July 11

Employment 60
40

Diffusion Index

EMPLOYMENT AND WAGES

The employment component of the Australian PSI increased by 1.8

40

Jan 09

Apr 09

July 09

Oct 09

Jan 10

Apr 10

July 10

Oct 10

Jan11

Apr 11

July 11

Stocks

DiffusionDiffusion Index Index

50 50

Employment

The stocks component of the Australian PSI fell 1.5 points to 48.0. Reports of declining inventory levels were common across the services

Diffusion Index

Jan 09

Apr 09

July 09

Oct 09

Jan 10

Apr 10

July 10

Oct 10

Jan11

Apr 11

July 11

60 35 Deliveries

Oct 11

25 40

Increasing Decreasing

sector in October, with only two sub-sectors reporting an increase in stocks during the month. The sharpest declines were reported by the hospitality and personal & recreational services sub-sectors. The increase in the stocks sub-index since the start of the year has largely reflected growing inventory levels in the finance & insurance and communication services sub-sectors. On the other hand, stock levels have continued to fall sharply in the hospitality, retail trade and health & community services sub-sectors.

Stocks
Diffusion Index

Jan 09

Oct 09

Jan 10

Oct 10

Apr 09

July 09

Apr 10

July 10

Apr 11

July 11

Oct 11

40 40 55 35 35 50 30 30 45 60 25 40 55

Jan11

35 50

Stocks

30 45

Increasing Decreasing

Jan 09

Jan 10

Apr 09

Apr 10

Jan11

Apr 11

Oct 09

Oct 10

July 09

July 10

July 11

Oct 11

Decreasing Increasing Decreasing

STOCKS

45 45 60

Oct 11

65 35 60 60 30 55 55

Average Wages

Increasing Increasing Decreasing

points in October though remained slightly below the critical 50 point level separating expansion from contraction. Employment growth was recorded in the finance & insurance, property & business services and health & community services sub-sectors. The average wages index decreased by 3.5 points to 58.7 in October. Wages growth was reported to have fallen most solidly in the property & business services and health & community services sub-sectors duringOctober. Abstracting from monthly volatility, the wages sub-index suggests that services sector wages growth has gradually increased over the course of the year.

Jan 09

Apr 09

Oct 09

Jan 10

Apr 10

Oct 10

July 09

July 10

Apr 11

Jan11

Average Wages

60 40 Diffusion Index 55 35

Employment 50
30
Jan 09 Apr 09 July 09 Jan 10 Apr 10 July 10 Oct 09

July 11

55 35 70 50 30 65 45

Employment

Oct 11

65 20 45

Average Wages

Increasing Decreasing

Employment

Apr 11

July 11

Oct 10

Jan11

Stocks70

45

Oct 11

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.

CONTACT
Heather Ridout Chief Executive Ai Group work 02 9466 5504 John Peters Senior Economist Commonwealth Bank work 02 9117 0112 mobile 0410 482 500 Markit Economics www.markiteconomics.com
The Australian Industry Group, 2011 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.
AIG10631

DELIVERIES, INPUT COSTS AND SELLING PRICES

Diffusion Index Diffusion Index

55 30 80 50 25 75 70 45 40 60

Jan 09

Oct 09

Jan 10

Oct 10

Jan11

Apr 09

July 09

Apr 10

July 10

Apr 11

Apr 10

July 10

Jan11

Apr 11

July 11

Jan 09

Apr 09

July 09

Oct 09

Jan 10

Oct 10

Diffusion Index

Selling Prices
Jan11 Apr 11

July 09

July 10

July 11

Jan 09

Apr 09

Oct 09

Jan 10

Apr 10

Oct 10

Diffusion Index

AUSTRALIAN PSI*
October 2011 September 2011 48.8 50.3 SALES 47.8 52.2 NEW ORDERS 49.4 50.7 EMPLOYMENT 49.6 47.8 SUPPLIER DELIVERIES 49.1 51.4 INVENTORIES 48.0 49.5 INPUT PRICES 66.4 62.8 SELLING PRICES 50.9 48.2 WAGES 58.7 62.2 CAPACITY UTILISATION (%) 74.0 75.9
AUSTRALIAN PSI

Deliveries
Monthly Change -1.5 -4.4 -1.3 1.8 -2.3 -1.5 3.6 2.7 -3.5 -1.9
Jan 09

Selling Prices

40

35 Results are based on the responses of around 200 companies. Forward seasonal factors were generated by the ABS in April 2011. 30 * Australian PSI data is seasonally adjusted for sales, new orders, employment, supplier deliveries, inventories and input prices. ** Number of months moving in current direction. 25
Apr 10 July 10 Oct 10 Jan11 Apr 11 July 11 Apr 09 July 09 Oct 09

Supported by:

Oct 11

Jan 09

Jan 10

Decreasing

Contracting 75 35 Contracting 70 30 Contracting 65 25 Contracting 60 Contracting 55 Expanding 50 Expanding 45 Expanding

Jan 09 Apr 09

Deliveries

Rate of Change From expanding From expanding From expanding Input Prices Slower From expanding Faster Faster From contracting Slower
Oct 09 Jan 10 Apr 10 July 10
Jan 10 Apr 10 July 10 Oct 09

Trend** (Months) 1 1 1 2 1 2 Selling Prices 105 1 28 na

Jan11 Apr 11 July 11 Oct 11
Jan11 Apr 11 July 11 Oct 11

Apr 09

July 09

Oct 10

Diffusion Index

July 09

Oct 10

IncreasingDecreasing

Increasing Decreasing

Input Prices

Oct 11

Oct 11

2.3 points to 49.1. The input prices index increased by 3.6 points to 66.4 in October, and is now slightly above the average level seen since the start of 2009. The rebound in the input prices index in recent months has reflected increased input price growth in the transport & storage and personal & recreational services sub-sectors. The average selling prices index increased by 2.7 points to 50.9. Selling price growth was strongest in the finance & insurance and property & recreational services sub-sectors in October.

Deliveries 65

Decreasing Increasing

Deliveries

55 35 80 50 75 30 45 70 Deliveries 40 65 25 35 60 30 80 55 25 75 50 70 45 65 Deliveries 40 60 35 55 30 50 Direction 25 45 Contracting Deliveries 80 40

Selling Prices

Input Prices

Increasing Decreasing

The supplier deliveries component of the Australian PSI declined by

Input Prices

July 11

Oct 11

Deliveries to the services sector fell in October.