s

Increasing

Key Findings
60 55 Key Findings 50
Increasing

APRIL 2012
APR
70 65 60

Diffusion Index

KEY FINDINGS
The latest seasonally adjusted Australian Industry Group/

55 40 5060 35 4555 30 4050 25

July 09 Oct 09 Jan 10 Apr 10 July 10 Oct 10 Jan11 Apr 11 July 11 Oct 11 Jan 12 Apr 12

Increasing Decreasing Increasing

SERVICES SECTOR SLUMPS IN APRIL Key Findings

60 45

Decreasing

AUSTRALIAN PSI

EUROZONE SERVICES INDEX

Commonwealth Bank Australian Performance of Services Index (Australian PSI) slumped by 7.4 points to 39.6 in April (readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decline). This was the lowest monthly reading since March 2009. The sharp fall in the Australian PSI was driven by declines in the sales and new orders components of the index, which are now both at their lowest levels in almost three years. Reports of weak trading conditions were widespread across all Australian PSI 3-month moving average services sub-sectors and all states. Consistent with these reports and with the latest weakening in Australian inflation (with headline inflation just 1.6% p.a. in the March quarter), the input prices and average wages and selling prices indices are now back at or below the levels seen during the Global Financial Crisis.

Diffusion Index Diffusion Index

39.6

55 50 45 40 35 30

Oct 09

Apr 10

July 10

Oct 10

Apr 11

July 11

Oct 11

Apr 12

Jan 10

Jan11

Jan 12

3545 3040 2535

Decreasing

Decreasing

Australian PSI

3-month moving average

MAR

July 09

July 10

July 11

Oct 09

Jan 10

Apr 10

Oct 10

Jan11

Apr 11

Oct 11

Jan 12

30 25

Apr 12

July 09

July 10

July 11

Oct 09

Jan 10

Apr 10

Oct 10

Jan11

Apr 11

Oct 11

Jan 12

Apr 12

Australian PSI

3-month moving average

MAR 49.2

70 65 60 55 50 45 40 35 30

Australian PSI
Wholesale trade Retail trade

Decreasing

3-month moving average

Increasing

SECTORS
On a seasonally adjusted basis, none of the nine sub-sectors

Accommodation, cafes & restaurants

Finance & insurance Personal & recreational services Property & business services PSI

UK SERVICES INDEX

surveyed reported that activity expanded in April. The sharp fall in the Australian PSI was driven by especially large declines in the activity indices of the finance & insurance, personal Wholesale trade & recreational services and health & community services subsectors. trade Retail Respondents across all sub-sectors continued to note that economic uncertainty, low levels of activity in large parts of the on, cafes & restaurants manufacturing and construction sectors, and the high level of the Transport & storage currency is weighing on activity. A number of respondents also noted that public and school mmunication services with Easter had a negative effect on their holidays associated activity levels over the survey period, but others gained a positive Finance & insuranceholiday period. boost from the While the activity indices for each sub-sector are seasonally rty & business services adjusted, the timing of Easter this year suggests that the Easter holiday period may have had a larger impact on the results of the & community services in other years. April survey than

Decreasing

Increasing

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

Decreasing

Increasing

Decreasing

Increasing

MAR FEB

10

20

30

40

50

60

70

80

90 100

MAR 55.3

70 65 60 55 50 45 40 35

Communication services Health & community services

Diffusion Index March 12 April 12

Health & community services 10 0 Personal & recreational services

20

30

40

50

60

70

80

90 100

Diffusion Index March 12

0 10 20 30 40

Sales
65 60

PSI

April 12
50 60 70 80
85 80 75

90 100

& recreational services

SALES AND CAPACITY

On a seasonally adjusted basis, sales levels in the services sector PSI

Diffusion Index March 12 April 12

MAR FEB MAR 56.0

30

60 40 5565 35

USA SERVICES INDEX

Diffusion Index Diffusion Index

declined sharply in April. 0 10 20 30 40 50 60 by 80 90 The sales component of the Australian PSI decreased70 10.8 points to 33.8, which is comparable to the levels seen following the Diffusion Index Global Financial Crisis in 2009. On a non-seasonally adjusted basis, sales levels declined across March 12 April 12 all service sub-sectors in April, with particularly sharp declines reported in the accommodation, cafes & restaurants and the health & community service sub-sectors. Capacity utilisation in the services sector (which is not seasonally adjusted) fell to 72.4% in April, well below the average level recorded since the start of 2010.

Sales 100
Diffusion Index

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

55 50

Capacity utilisation

70 65 60 55 50 45 40

Sales

65 45

Sales

85 70 80 65 85 75 60 80 70 55 75 65 70 60

Capacity utilisation

5060 30 4555 25
Oct 09 Jan 10 Apr 10

Sales Capacity utilisation

Oct 10 Jan11 Apr 11 Oct 11 Jan 12 July 10 July 11 Apr 12

4050 3545 3040

July 09

Sales

Supported by:
55
Oct 10 Oct 11 Jan 12 Apr 10 July 10 Apr 11 July 11 Apr 12 Oct 09 Jan 10 Jan11

65 60

AUG OCT FEB MAR

35 30

85

30

July 09

2535

35 65 30

Increasing

NEW ORDERS
On a seasonally adjusted basis, new orders contracted further in April. The new orders sub-index fell by 11.9 points to 35.8, which is similar to

Employment 60 25
55 20
Oct 09 Jan 10 Oct 10 Oct 11 Apr 10 Apr 11 Jan 12 Jan11 July 09 July 10

Decre

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 IndexDiffusion Index

Employment 40 60
35 55 70 30 50 25 65 45 20 60 40 55 35 50 70 30 45 65 40 60 Diffusion Index 35 55 30

Employment Average Wages Jan 10 Oct 09 Oct 10 July 09 Apr 10 July 10 Apr 11 July 11 Oct 11 Jan 12 Jan11 Apr 12 Apr 12

Employment
Diffusion Index

EMPLOYMENT AND WAGES

On a seasonally adjusted basis, employment continued to contract in

Employment Oct 09 Jan 10 Oct 10 Oct 11 Apr 10 July 09 July 10 Apr 11 July 11 Jan 12 Jan11

Jan 10

Oct 09

Oct 10

July 09

Apr 10

July 10

Apr 11

July 11

Oct 11

Jan 12

Jan11

Diffusion Index Diffusion Index

55 50

On a seasonally adjusted basis, stock levels declined further in April. The stocks component of the Australian PSI fell 5.9 points to 42.1, its

lowest level since January 2010.

Stock levels contracted across most service sub-sectors in April, with

Stocks
Diffusion Index

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

Diffusion Index

30 55 80
Jan 10 Oct 09 Oct 10 July 09 Apr 10 July 10 Apr 11 July 11 Oct 11 Jan 12 Jan11 Apr 12

Increasing

DELIVERIES, INPUT COSTS AND SELLING PRICES

On a seasonally adjusted basis, deliveries to the services sector fell

Deliveries 35
60

Decreasing

Jan 10

Oct 09

Oct 10

July 09

Apr 10

July 10

Apr 11

July 11

Oct 11

Jan 12

Jan11

Apr 12

Stocks40

45 25

Decreasing Increasing

particularly sharp declines reported in the finance & insurance and personal & recreational services sub-sectors. In contrast, stocks expanded modestly in the transport & storage and accommodation, cafes & restaurants sub-sectors.

Jan 10Jan 10

Oct Oct 09 09

Oct Oct 10 10

July July 09 09

Apr Apr 10 10

July July 10 10

Apr Apr 11 11

July July 11 11

Oct Oct 11 11

Jan 12Jan 12

Jan11 Jan11

Apr Apr 12 12

Increasing Decreasing Decreasing

STOCKS

50 45 60

Employment

Apr 12

Stocks

30 55 60

Increasing Increasing

the services sector in April, while wages growth moderated. The employment component of the Australian PSI decreased by 2.3 points in April to 46.6. On a non-seasonally adjusted basis, the average wages index fell by 1.9 points to 53.3 in April. The recent falls in the wages sub-index have been largely driven by wage moderation in the retail trade and the accommodation, cafes & restaurants sub-sectors. The transport & storage and communication services sub-sectors have reported the strongest wages growth in recent months.

Decreasing

50 Employment Stocks45
July 09

Employment

Decreasing Increasing

Average Wages

Increasing Decreasing

Decreasing Increasing

the levels seen following the Global Financial Crisis in 2009. On a non-seasonally adjusted basis, new orders declined across all service sub-sectors in April, with particularly sharp declines reported in the health & community services and personal & recreational services sub-sectors.

70 50 45 65

Average Wages

July 11

Apr 12

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.

Oct 09

Jan 10

Oct 10

Oct 11

Apr 10

Apr 11

Jan 12

Jan11

July 10

40 70 60 35 65
Average Wages

July 11

Apr 12

CONTACT
Innes Willox Chief Executive Ai Group 02 6233 0712 John Peters Senior Economist Commonwealth Bank work 02 9117 0112 mobile 0410 482 500 Markit Economics www.markiteconomics.com
The Australian Industry Group, 2012 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.
AIG11406

The supplier deliveries sub-index fell 4.1 points to 41.9 points in April,

Diffusion Diffusion Index Index

its lowest level since March 2011.

On a non-seasonally adjusted basis, the input prices index fell 7.3

65 45 60 40 80 55 75 50 35 70 45

Diffusion Index

Oct 09

Jan 10

Oct 10

Oct 11

July 09

Apr 10

July 10

Apr 11

July 11

Jan 12

Jan11

40

Results are based on the responses of around 200 companies. Forward seasonal factors were generated in April 2012. 35 * Australian PSI data is seasonally adjusted for sales, new orders, employment, supplier deliveries, inventories and input prices. 30 ** Number of months moving in current direction. 25
Oct 09 Oct 10 Oct 11 Jan 12 Jan 10 Jan11 July 09 Apr 10 July 10 Apr 11

Supported by:

July 11

Apr 12

Decreasing

April 2012 39.6 SALES 33.8 NEW ORDERS 35.8 EMPLOYMENT 46.6 SUPPLIER DELIVERIES 41.9 INVENTORIES 42.1 INPUT PRICES 52.6 SELLING PRICES 45.9 WAGES 53.3 CAPACITY UTILISATION (%) 72.4
AUSTRALIAN PSI

March 2012 47.0 44.6 47.7 48.9 46.0 48.0 59.9 45.7 55.2 73.0

Monthly Change -7.4 -10.8 -11.9 -2.3 -4.1 -5.9 -7.3 0.2 -1.9 -0.6

Diffusion Index

Direction 45 Contracting 40 80 Contracting 35 75 Contracting 30 70 Contracting 25 Contracting 65 Contracting 60 Expanding 55 Contracting 50 Expanding 45
Oct 09 July 09

Rate of Change Faster Faster Faster Input Prices Faster Faster Faster Slower Selling Prices Slower Slower
Oct 10 July 10 Jan11 Apr 10

Trend** (Months) 3 6 3 3 3 3 Deliveries 110 5 33

Oct 11 July 11 Jan 12 Apr 12

Apr 12

AUSTRALIAN PSI*

Deliveries Selling Prices

Deliveries

Jan 10

Apr 11

Increasing

Decreasing

Decreasing Increasing

points to 52.6 in April, and is now well below the average level seen since the start of 2009. The recent fall in the input prices index has largely been driven by lower input cost growth in the personal & recreational services and finance & insurance sub-sectors. On a non-seasonally adjusted basis, the average selling prices index rose by 0.2 per cent to 45.9. The relatively low levels of both the input price index and the average selling prices index reflects recent weakness in Australian inflation more generally, with headline inflation falling to just 1.6% p.a. in the first quarter of 2012.

Deliveries Selling Prices Input Prices

30 65 40 Deliveries Diffusion Index 60 35 25 55 30 80 50 25 75 45 70 40 65 35 60 30 55 25 50

Deliveries Oct 11 Oct 11 Jan 12 Jan 12

Oct 09 Oct 09

Jan 10 Jan 10

July 09 July 09

Apr 10 Apr 10

July 10 July 10

Oct 10 Oct 10

Jan11 Jan11

Apr 11 Apr 11

July 11 July 11

Selling Prices

Input Prices

Apr 12 Apr 12

Increasing Decreasing

Decreasing Increasing

sharply in April.

Deliveries

75 25 50 70

Input Prices