Australia | Aug 05 2008
By Chris Shaw
Australia’s economic news continues to indicate a weakening in activity levels, with this time the Commonwealth Bank/Australian Industry Group (AiG) Performance of Services Index falling 2.6 points to 42.8 in July, leaving it well below the 50.0 point level that marks the separation point between expansion and contraction in the broader economy.
According to Commonwealth Bank chief economist Michael Blythe the service sector weakness confirms the Australian economy is slowing sharply, largely given the combination of tight financial conditions, low levels of confidence and higher fuel prices.
Businesses agreed and a majority cited high fuel prices and high levels of interest rates as the primary factors holding back demand for their services, as evidenced by new orders and supplier deliveries falling for the fourth month in a row and an increase in the pace of decline in both sales and employment.
Nowhere appears immune to the slowdown as the Index showed activity levels declining in all states, with only Queensland and Tasmania experiencing a slowing in the rate of contraction. Only the communication services and personal and recreation services sectors experienced gains during the month, while the sharpest falls were felt in the wholesale trade and finance and insurance sectors of the economy.
No sectors posted stronger new orders in the period compared to one sector in the June survey and none of the nine service sectors recorded stronger sales in July, which indicates a further deterioration given the communication services and property and business services sectors had posted stronger sales in the June survey. Blythe sees one encouraging factor though in that retail sales appear to have recovered slightly in the first month of the new financial year following the weakness evident in June.
Wages were up strongly in the month and gained 5.9 points to 67.8 but AiG chief executive Heather Ridout suggests the latest employment sub-index readings show employers are reassessing their hiring intentions in view of the economic slowdown, which may have implications for employment going forward.
Overall Ridout said the July result was disappointing and she pointed out the weak readings in new orders, inventories and employment suggest further weakness in coming months.