Australia | Jun 03 2009
By Rudi Filapek-Vandyck
Australia’s services sector activity contracted for a fourteenth consecutive month with the seasonally adjusted Australian Industry Group-Commonwealth Bank Performance of Services Index (PSI) rising just 0.1 point to 39.9 in May.
There was some good news though as five of the nine services sub-sectors recorded higher index readings in the month, and the accommodation, cafes and restaurants, communication services; and health and community services sectors pushed towards growth. There was, on the other hand, also a steeper pace of decline in retail activity.
According to Commonwealth Bank Senior Economist, John Peters “Sluggish services sector activity is consistent with contracting activity in the non-farm economy (97% of total economy) since the middle of 2008.”
Peters believes the heartening news is that the pace of decline in services sector activity has abated in the second quarter from strongly contracting activity in the first quarter of calendar 2009. He adds this brighter outlook has no doubt been driven by sharply lower mortgage rates and the Federal Government’s stimulus packages, including the first home owners’ scheme. The Federal Government’s stimulus packages have helped boost activity, particularly in the retail, wholesale trade and property sectors, he believes.
One stand-out bright spot in the May Australian PSI is the sharp 4.3 point lift in the employment sub-index to 46.0, which is the highest reading for this sub-index in eight months. This suggests that jobs shedding in the current downturn is likely to turn out to be more moderate than in the recessions of 1990/91 and 1982/83 when unemployment rose above 10%, according to Peters.
Key Findings for May include:
– The Australian Industry Group/Commonwealth Bank Performance of Services Index (PSI) rose 0.1 points to 39.9 in May, still well below the 50.0 level that separates expansion from contraction.
- Aggregate sales and new orders fell at a slightly faster pace, but the employment sub-index rose to its highest level in eight months.
– New orders fell for a 14th consecutive month in May. The seasonally adjusted sub-index fell by 2.7 points to 34.9.
– Despite the significant impact of the economic downturn, the Government’s expanded business investment tax break has been identified as having a positive influence on conditions.
– Input costs lifted in all sectors, excluding finance and insurance where they were steady.
– Activity fell in all states excluding Tasmania with the rate of decline moderating in two; Victoria and South Australia.