Australia | Apr 03 2009
By Chris Shaw
The good news to be taken from the monthly CBA/AiG Performance of Services Index for March is the index rose by 3.4 points to a reading of 35.6 but the bad news is this remains well below the 50 point level that separates expansion from contraction.
While the deterioration in activity levels remains broadly based, the pace of decline eased in five sectors including property and business services, sales, new orders and supplier deliveries. There remain some pockets of weakness as Commonwealth Bank chief economist Michael Blythe notes employment in the services sector fell by its heaviest rate in the six year history of the survey and no sectors recorded a gain in employment in the period.
Blythe also notes in seasonally adjusted terms activity declined in all nine sectors in March, which is a weaker outcome than the eight sectors of decline over the previous two months. Sales also fell on a seasonally adjusted basis, with the retail trade and wholesale trade sectors recording the largest declines for the month.
The survey also showed selling prices and wages both fell further in March, while inventories of finished goods declined for the 11th month in a row and new orders also contracted, but at a slower rate than in previous months. In contrast, there was a slight pick-up in the rate of imput cost growth.
Activity fell in all states but the rate of decline fell everywhere but in Victoria and Tasmania.
As Blythe points out, the ongoing weak activity levels in the services sector are consistent with the contraction in the non-farm economy since the middle of 2008. While lower mortgage rates and fiscal stimulus measures are helping the retail trade and property sectors, these are being offset by the collapse in global economic growth and the impact this is having on consumer and business spending.
According to Blythe, the PSI data supports his view the Reserve Bank of Australia has not finished cutting interest rates and a futher cut of 0.5% can be expected in the next month or two, potentially coming as early as at the RBA meeting next week.