June 2013

Cautious consumers hold back services sector in June

The latest seasonally adjusted Australian Industry Group / Commonwealth Bank of Australia Performance of Services Index (Australian PSI) rose by 0.9 points in June to 41.5 points (readings below 50 indicate contraction). Over the past four years, the Australian PSI has been lower than the level recorded in June in only two other months: May 2013 (40.6 points) and April 2012 (39.6 points). Businesses in most household-oriented sub-sectors are yet to report any signs that recent interest rate cuts have helped boost sales. Personal & recreational services was the only sub-sector in this group to expand in June. The activity indices of the retail and hospitality sub-sectors both suggest that activity declined further in June and, in three month moving average terms, are at their lowest levels this year. Business-oriented sub-sectors are also struggling. Wholesale trade and transport & storage were among the worst performing service sub-sectors in June, reflecting weak levels of demand from retail, manufacturing and construction businesses. Given the recent peak and apparent decline in mining investment activity, and a (sub-trend) GDP growth rate of just 2.5% in Q1 2012, these results indicate a widening growth gap in this second quarter of 2013.

JUN

65 60

Australian PSI

Key findings
60
Increasing

55

41.5

50 45 40 35

55 50
Diffusion Index

AUST

45
Decreasing

MAY

30

40 35 30 25

EUROZONE SERVICES INDEX

MAY

65 60

Dec 10

Mar 11

Dec 11

Mar 12

Dec 12

June 10

June 11

Sept 11

June 12

Sept 12

Mar 13

Sep 10

Jun 13

Australian PSI

3 month moving average

EURO

47.2

55 50 45 40 35

Sectors
Personal & recreational and communication services were the only two sub-sectors to expand in June. In fact, the personal & recreational services sub-sector has expanded for six consecutive months. Other household-oriented sub-sectors however have lost momentum over the past few months, in line with the falls seen in broader consumer sentiment measures and despite cuts to the cash rate. The activity indices of the retail trade and hospitality sub-sectors both suggest that activity declined further in June and, in three month moving average terms, are at their lowest levels this year. Activity in business-oriented sub-sectors also remains weak. Wholesale trade and transport & storage were among the worst performing service sub-sectors in June, reflecting weak levels of demand from retail, manufacturing and general construction, plus weakening construction activity in the mining sector.
Wholesale trade Retail trade Accommodation, cafes and restaurants Transport and storage Communication services Finance and insurance

Decreasing

Increasing

APR

30

MAY

65 60

UK SERVICES INDEX

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

55 50

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

54.9

45 40 35

Diffusion Index
(3 month moving average)

May 13

Jun 13

APR

Sales and capacity

On a seasonally adjusted basis, the sales sub-index contracted in June for the third consecutive month. The sales component of the Australian PSI fell 0.2 points to 37.7 points, its lowest level since last October. The monthly decline in the sales sub-index reflected solid falls in sales levels across the finance & insurance, hospitality, and transport & storage sub-sectors (in unadjusted terms). No sector recorded sales growth in June. Capacity utilisation in the services sector (which is not seasonally adjusted) rose by 0.6 points to 74.8%, which is still below the average level of capacity utilisation recorded since the start of 2010.
Diffusion Index

65 60 55 50
Sales Capacity Utilisation

85 80 75 70 65 60 55
Capacity Utilisation % (Unadj.)

30

MAY

65 60 55 50

45 40 35 30
June 10 Sep 10 Dec 10 Mar 11 June 11 Sept 11 Dec 11 Mar 12 June 12 Sept 12 Dec 12 Mar 13 Jun 13

US

USA SERVICES INDEX

53.7
APR

45 40 35 30

25

 The new orders sub-index rose by 3.6 points, although at 41.8, it

60 55
Diffusion Index

June 10

Sep 10

Dec 10

June 11

Sept 11

Dec 11

June 12

Sept 12

Dec 12

Mar 11

Mar 12

Employment and wages

On a seasonally adjusted basis, the employment sub-index increased by

70 65 60
Diffusion Index Average wages

Mar 13

Jun 13

remains well in the red. New orders for the services sector have been in contraction (below 50 points) in every month since June 2012. The decline in new order levels in June were driven by especially weak activity in the hospitality, communication services and property & business services sub-sectors. Falling orders in these sub-sectors was partly offset by growth in orders in the personal & recreational services sub-sector. 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 demand.

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

40 35 30 25 20

0.2 points to 45.8 points in June. This was its third consecutive monthly fall after a promising period of expansion in March and February 2013. The low level of the sub-index reflected sharp employment reductions across the wholesale trade, transport & storage, and property & business service sub-sectors (in unadjusted terms). These were partly offset by employment growth in the communication and finance & insurance sub-sectors. On a non-seasonally adjusted basis, the average wages sub-index rose by 1.3 points to 56.3 points in June. This rate of increase is below the average level of wage growth recorded since the start of 2010, which suggests moderating wage pressures in the services sector, and especially in the finance & insurance, and property & business service sub-sectors.

55 50 45 40 35 30

Employment

Increasing

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.
Decreasing

June 10

Sep 10

Dec 10

June 11

Sept 11

Dec 11

June 12

Sept 12

Dec 12

Mar 11

Mar 12

On a seasonally adjusted basis, stocks (or inventories) in the services

55 50
Diffusion Index

June 10

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Dec 11

Mar 12

June 12

Sept 12

Dec 12

Mar 13

Jun 13

sector declined for the eighth consecutive month in June. The stocks sub-index of the Australian PSI rose 1.1 points in June to 39.4 points. The decline in stocks levels across the services sector reflected falling inventories in the retail & wholesale trade, and business & property services sub-sectors (in unadjusted terms). The supplier deliveries sub-index decreased by 0.4 points this month to 41.8 points. The decline in deliveries to the services sector was driven by declining delivery activity in the retail & wholesale trade, and business & property service sub-sectors (in unadjusted terms).

Deliveries Stocks

45
Decreasing

40 35 30 25

Increasing

Stocks and deliveries

60

Mar 13

Jun 13

CONTACT

Input costs and selling prices

On a non-seasonally adjusted basis, the input prices index fell 1.2

80 75
Input Prices
Increasing

June 10

Mar 11

June 11

Mar 12

June 12

Mar 13

Sep 10

Dec 10

Sept 11

Dec 11

Sept 12

AUSTRALIAN PSI**
June 2013 May 2013 Monthly Change Direction Rate of Change Trend*** (Months) 41.5 40.6 0.9 Contracting Slower 17 Sales 37.7 37.9 -0.2 Contracting Faster 3 New Orders 41.8 38.2 3.6 Contracting Slower 12 Employment 45.8 45.6 0.2 Contracting Slower 3 Supplier Deliveries 41.8 42.2 -0.4 Contracting Faster 12 Inventories 39.4 38.3 1.1 Contracting Slower 8 Input Prices 61.8 63.0 -1.2 Expanding Slower 123 Selling Prices 45.3 42.2 3.1 Contracting Slower 20 Wages 56.3 55.0 1.3 Expanding Slower 46 Capacity Utilisation (%) 74.8 74.2 0.6
Australian PSI
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

Dec 12

Jun 13

points to 61.8 points in June, 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 rose by 3.1 points to 45.3 points. Selling prices in the retail trade sector failed to grow for the 19th consecutive month in June, as businesses continue to discount in order 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 Q1 of 2013 (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.
AIG13176

60 55 50
Selling Prices

40 35 30 25

Decreasing

45