february 2013

services sector nudges towards growth in february
Key findings
■ The latest seasonally adjusted Australian Industry Group/ Commonwealth Bank of Australia Performance of Services Index (Australian PSI®) rose 3.1 points in February to 48.5 (readings below 50 indicate a contraction in activity, with the distance from 50 indicating the scale of decline). ■ This was the highest level of the Australian PSI® since June 2012. It was supported by increases in the sales, new orders, and employment sub-indexes, with employment levels rising for the first time since January 2012. ■ In three-month-moving average terms, the Australian PSI® has slowly trended upwards over the past six months, during a period which saw the 125 basis point cut to the official cash rate during 2012. ■ This has seen a gradual rise in the activity indexes of sub-sectors directly exposed to household spending including personal & recreational services and retail trade. ■ The activity index of the property & business services sub-sector has also stabilised in recent months (albeit in contractionary territory), after declining through much of 2012.

FEB

65 60

australian psi®

55

60
Increasing

48.5

50 45 40 35

55 50
Diffusion Index

AUST

45
Decreasing

JAN

30

40 35 30 25

euroZone services indeX

JAN

65 60

May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

48.6

55 50 45 40 35

Australian PSI®

3 month moving average

EURO

sectors
■ On a seasonally adjusted basis, two sub-sectors expanded in February, down from four in January (i.e. the activity index of these sub-sectors was above 50 points). ■ Businesses in the health & community services and personal & recreational services sub-sectors reported growth in activity levels for a second consecutive month. ■ At the other end of the scale, the property & business services and transport & storage sub-sectors reported further falls in activity in February. The property & business services sub-sector has been contracting (with index readings under 50 points) since December 2011. ■ Businesses in these sub-sectors reported that declines in mining sector sentiment and continuing weakness in manufacturing and non-residential construction were hampering activity.
Wholesale trade Retail trade Accommodation, cafes & restaurants* Transport & storage Communication services* Finance & insurance* Property & business services Health & community services

Decreasing

Increasing

DEC

30

JAN

65 60

uK services indeX

Personal & recreational services PSI

0

10

20

30

40

50

60

70

80

90 100

UK

51.5

55 50 45 40 35

Diffusion Index
*

Jan 13

Feb 13

Activity indexes for the finance & insurance, communication services and accommodation, café & restaurant sub-sectors were not published this month due to the small number of survey responses from these sub-sectors.

sales and capacity
■ On a seasonally adjusted basis, sales levels contracted again in February. ■ The sales component of the Australian PSI® rose 4.3 points to 47.7 points. ■ The sales sub-index was weighed down by sharp declines in sales levels in the transport & storage and retail trade sub-sectors. ■ On the other hand, modest sales growth was recorded in the personal & recreational services sub-sector. ■ Capacity utilisation in the services sector (which is not seasonally adjusted) increased by 1.1 points to 76.3%, which is in line with the average level recorded since the start of 2010.

65 60
Diffusion Index

85 80
Capacity Utilisation Capacity Utilisation % (Unadj.)

DEC

30

55 50 45 40 35 30 25
Sales

75 70 65 60 55

JAN

65 60

US

usa services indeX

55 50

55.2

45 40 35

May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

Supported by:

DEC

30

■ On a seasonally adjusted basis, new orders fell again in February, but

60 55
Diffusion Index

■ ■

employment and wages
■ On a seasonally adjusted basis, employment expanded in the services

70 65 60
Diffusion Index Average wages

■ ■ ■

sector in February, for the first time since January 2012. The employment sub-index rose 1.8 points in February to 51.7. This was the highest reading for the employment sub-index since August 2011. The rise in employment levels was strongest in the retail trade and health & community services sub-sectors. This was offset however by employment reductions in the personal & recreational services and wholesale trade sub-sectors. On a non-seasonally adjusted basis, the average wages index rose by 1.6 points to 59.8 in February to be above the average level recorded since the start of 2010. The average wages index was supported by solid wage growth in the transport & storage and health & community services sub-sectors.

May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

the rate of decline eased markedly. The new orders sub-index rose by 5.7 points to 48.7 points. The fall in the new orders across the services sector was driven by especially weak activity in the transport & storage and retail trade sub-sectors. Falling new orders in these sub-sectors were partly offset by growth in the health & community and personal & recreational 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.

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

50 45
Decreasing Increasing

40 35 30 25 20

55
Employment

50 45 40 35
May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13
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

Deliveries

■ ■ ■

services sector declined for a fourth consecutive month in February, and at an accelerating rate of contraction. The stocks sub-index of the Australian PSI® fell by 4.4 points in the month to 45.0 points. The fall in the index was driven by declining stock levels in the transport & storage and retail trade sub-sectors. The supplier deliveries sub-index increased by 4.1 points this month to 46.1 points, but remained below the 50 point level separating expansion from contraction. The decline in deliveries to the services sector was driven by activity in the transport & storage and personal & recreational services sub-sectors.

Stocks

45
Decreasing

40 35 30 25

May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

Increasing

stocKs and deliveries

60

contact

input costs and selling prices
■ On a non-seasonally adjusted basis, the input prices index rose 2.8

80 75
Increasing

points to 62.8 in February, which is broadly in line with the average level recorded since the start of 2009. ■ On a non-seasonally adjusted basis, the average selling prices index decreased by 4.9 points to 44.3, 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 15th consecutive month in February, as businesses continue to lower prices to help stimulate sales volumes. ■ The low level of the average selling prices index is consistent with recent weakness in Australian inflation more generally, with headline inflation recording just 2.2% p.a. in the December quarter of 2012 (and with even smaller price changes for many foods and other consumer goods).

70 65
Diffusion Index

Input Prices

Innes Willox Chief Executive Ai Group 03 9867 0111 Michael Workman Senior Economist Commonwealth Bank of Australia Mobile: 0414 870 394 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.
AIG12697

60 55 50
Selling Prices

40 35 30
May 10 June 10 July 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan11 Feb 11 Mar 11 Apr 11 May 11 June 11 July 11 Aug 11 Sept 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 June 12 July 12 Aug 12 Sept 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13

25

australian psi®* february 2013
February 2013 48.5 sales 47.7 new orders 48.7 employment 51.7 supplier deliveries 46.1 inventories 45.0 input prices 62.8 selling prices 44.3 wages 59.8 capacity utilisation (%) 76.3
australian psi®

January 2013 45.4 43.4 43.0 49.9 42.0 49.4 60.0 49.2 58.2 75.2

Monthly Change 3.1 4.3 5.7 1.8 4.1 -4.4 2.8 -4.9 1.6 1.1

Direction Contracting Contracting Contracting Contracting Contracting Contracting Expanding Contracting Expanding

Rate of Change Slower Slower Faster Slower Slower Slower Faster Slower Slower Slower

Trend** (Months) 12 7 7 12 7 3 119 15 42 12

Results are based on the responses of around 150 companies. Forward seasonal factors were generated by the ABS in April 2012. * 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

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