MARCH 2013

SERVICES SECTOR NUDGES GROWTH IN MARCH

The latest seasonally adjusted Australian Industry Group/ Commonwealth Bank of Australia Performance of Services Index (Australian PSI) rose to 49.6 in March, its highest level since January 2012. This months reading indicates that activity edged towards positive territory in the services sector during the month after being in decline since the start of 2012. The Australian PSI was supported in March by a rise in both sales and employment levels the first time this has been reported since August 2011. Rising activity levels were most commonly reported by businesses from the retail trade and hospitality sub-sectors that are directly exposed to household spending. The activity index of the property & business services sub-sector picked up further in March though remains in negative territory in the face of ongoing weakness in housing market conditions. Notwithstanding the stabilisation of the broader services sector, a growing number of businesses reported that activity levels are being hampered by uncertainty surrounding the upcoming federal budget and election.

MAR

65 60

AUSTRALIAN PSI

KEY FINDINGS
60
Increasing

49.6

55 50 45 40 35

55 50
Diffusion Index

AUST

45
Decreasing

FEB

30

40 35 30 25

EUROZONE SERVICES INDEX

FEB

65 60

June 10

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Dec 11

Mar 12

June 12

Sept 12

Dec 12

Mar 13

Australian PSI

3 month moving average

47.9

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 service sub-sectors directly exposed to household spending, while businesses services such as transport & storage and communication services are yet to report any significant change in business conditions. In three-month-moving average (3mma) terms, activity has risen across the hospitality, health & community services, and personal & recreational service sub-sectors in both February and March. The 3mma activity index of the retail trade sub-sector has also picked up to its highest level since June 2011. On a less positive note, the 3mma activity index of the transport & storage sector is at its lowest level since the series started in 2003, underlying the weakness still present in large parts of the manufacturing and construction sectors. From this month, we are presenting 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.
Decreasing Increasing

Wholesale trade Retail trade Accommodation, cafes and restaurants Transport and storage Communication services Finance and insurance

JAN

30

FEB

65 60

UK SERVICES INDEX

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

UK
0 10 20 30 40 50 60 70 80 90 100
Diffusion Index
(3 month moving average)

51.8

55 50 45 40 35

Feb 13

Mar 13

JAN

45 40 35 30 25

70 65 60 55

US

USA SERVICES INDEX

On a seasonally adjusted basis, sales levels rose in the services sector for the first time since June 2012. The sales component of the Australian PSI rose 3.1 points to 50.8 points. This was supported by sales growth in the property & business services and health & community services sub-sectors. On the other hand, sales continued to decline solidly in the wholesale trade and transport & storage sub-sectors. Capacity utilisation in the services sector (which is not seasonally adjusted) increased by 0.4 points to 76.7%, 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

FEB

65 60 55 50

56.0

45 40 35

June 10

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Dec 11

Mar 12

June 12

Sept 12

Dec 12

Mar 13

Supported by:

JAN

30

 On a seasonally adjusted basis, new orders fell again in March. The new orders sub-index rose by 0.1 points to 48.8 points. The fall in new orders was driven by especially weak activity in the

60 55
Diffusion Index

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

transport & storage, wholesale trade and communication services sub-sectors. Falling new orders in these sub-sectors were partly offset by growth in the property & business 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.

50 45
Decreasing

40 35 30 25
June 10 Sep 10 Dec 10 Mar 11 June 11 Sept 11 Dec 11 Mar 12 June 12 Sept 12 Dec 12 Mar 13

20

EMPLOYMENT AND WAGES

On a seasonally adjusted basis, employment expanded in the services

70 65 60
Diffusion Index Average wages
Increasing

sector for the second consecutive month. The employment sub-index fell 1.5 points in March to 50.2. The rise in employment levels was strongest in the health & community services sub-sector. This was offset however by employment reductions in the wholesale trade and transport & storage sub-sectors. On a non-seasonally adjusted basis, the average wages sub-index fell by 6.6 points to 53.2 in March marking a rate of increase below the average level recorded since the start of 2010. The moderation of the average wages sub-index was largely due to wage declines in the transport & storage and property & business services sub-sectors.

55
Employment

50 45 40 35
June 10 Sep 10 Dec 10 Mar 11 June 11 Sept 11 Dec 11 Mar 12 June 12 Sept 12 Dec 12 Mar 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 Stocks

services sector declined for a fifth consecutive month in March. The stocks sub-index of the Australian PSI rose by 1.4 points in the month to 46.4 points. The fall in inventories was driven by declining stock levels in the transport & storage and communication services sub-sectors. The supplier deliveries sub-index increased by 3.8 points this month to 49.9 points, its highest level since January 2012. The decline in deliveries to the services sector was driven by activity in the transport & storage and wholesale trade sub-sectors.

45
Decreasing

40 35 30 25

June 10

Sep 10

Dec 10

Mar 11

June 11

Dec 11

Mar 12

June 12

Dec 12

Sept 11

Sept 12

Mar 13

Increasing

STOCKS AND DELIVERIES

60

CONTACT

INPUT COSTS AND SELLING PRICES

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

80 75
Input Prices
Increasing

points to 53.4 in March.

On a non-seasonally adjusted basis, the average selling prices index

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.
AIG12815

increased by 1.4 points to 45.7, remaining well below the critical 50point 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 16th consecutive month in March, 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).

60 55 50
Selling Prices

40 35 30
June 10 Sep 10 Mar 11 June 11 Sept 11 Mar 12 June 12 Sept 12 Mar 13 Dec 10 Dec 11 Dec 12

25

AUSTRALIAN PSI*
March 2013 49.6 SALES 50.8 NEW ORDERS 48.8 EMPLOYMENT 50.2 SUPPLIER DELIVERIES 49.9 INVENTORIES 46.4 INPUT PRICES 53.4 SELLING PRICES 45.7 WAGES 53.2 CAPACITY UTILISATION (%) 76.7
AUSTRALIAN PSI

February 2013 48.5 47.7 48.7 51.7 46.1 45.0 62.8 44.3 59.8 76.3

Monthly Change 1.1 3.1 0.1 -1.5 3.8 1.4 -9.4 1.4 -6.6 0.4

Direction Rate of Change Contracting Slower Expanding From contracting Contracting Slower Expanding Slower Contracting Slower Contracting Slower Expanding Slower Contracting Slower Expanding Slower

Trend** (Months) 14 1 9 2 9 5 121 17 44

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