The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell by 6.1 points to 51.7 in July, recording its largest monthly fall since April 2020 (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase).
Ai Group Chief Executive, Innes Willox, said: “The substantial easing in the performance of the Australian services sector in July was mainly driven by the COVID-19 outbreaks and associated restrictions. Across the services sector, momentum was all but lost on the back of the sharpest contraction in the retail & hospitality services sector since April last year. Personal, recreational & other services also contracted while other services sectors saw sharp declines in the pace of growth. While impacts were particularly acute in NSW and Victoria, reverberations were felt nationally – particularly by tourism businesses. There were some encouraging signs with employment and sales holding up and new orders coming in at a faster pace than in June. This provides some grounds to expect the services sector could bounce back quickly if restrictions were able to be lifted. However, with COVID-19 infections and restricted areas on the rise in the early days of August, the chances of an early rebound appear to be fading,” Mr Willox said.
Australian PSI® – Key Findings for July 2021:
- Three of the five services sectors available in the Australian PSI® indicated expansion in July and two contracted (see table below). The business-oriented sectors both expanded, but the pace of expansion moderated substantially. Among consumer-oriented sectors, only health & education remained in expansion (down 10.9 points to 52.2), with retail trade & hospitality reporting large falls in activity (down 24.2 points to 26.8).
- Three of the five activity indices in the Australian PSI® showed positive results in July (see table below), although growth in sales (down 12.9 points to 53.2) and employment (down 3.2 points to 51.0) moderated. While new orders increased at almost the same rate as June following a series high in May (up 0.1 point to 56.7), supplier deliveries (down 9.6 points to 45.3) and inventories (down 6.7 points to 47.0) both contracted following months of recovery in the first half of the year.
- The input prices index increased further in July (up 8.7 points to 74.1), marking 13 months of increases following the index’s record low in June 2020. The average wages index continued to climb (up 2.0 points to 68.0 – the highest result in the history of the series), indicating increasing wage pressures for services businesses seeking skilled staff. Selling prices increased (up 13.2 points to 66.7), marking six months of increases as businesses pass on their higher input costs.
Seasonally adjusted | Index this month | Change from last month | 12- month average | Seasonally adjusted | Index this month | Change from last month | 12- month average |
Australian PSI® | 51.7 | -6.1 | 50.1 | Business-oriented services | |||
Sales | 53.2 | -12.9 | 50.6 | Business & property | 51.5 | -10.7 | 50.9 |
Employment | 51.0 | -3.2 | 50.2 | Logistics | 53.5 | -7.7 | 47.5 |
New Orders | 56.7 | 0.1 | 50.8 | Finance & insurance | na | na | na |
Supplier deliveries | 45.3 | -9.6 | 48.8 | ||||
Finished stocks | 47.0 | -6.7 | 48.9 | Consumer-oriented services | |||
Capacity utilisation (%) | 80.5 | -2.5 | 76.4 | Retail trade & hospitality | 26.8 | -24.2 | 47.9 |
Prices and wages | Health & education | 52.2 | -10.9 | 51.9 | |||
Input prices | 74.1 | 8.7 | 63.9 | Personal, recreational & other | 47.0 | -11.8 | 53.3 |
Selling prices | 66.7 | 13.2 | 48.7 | ||||
Average wages | 68.0 | 2.0 | 57.0 |
Results above 50 points indicate expansion. Trend indexes in the Australian PSI® are calculated with a Henderson 13-month filter formula.
na: Results are not available for this sector in this period due to unusually low survey response numbers. All sectors are included in the total results.
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Background: The Ai Group Australian PSI® is a leading indicator of services activity in the Australian economy. It is a seasonally adjusted national composite index based on the diffusion indices for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI® reading above 50 points indicates that 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. Results are based on a sample of around 200 companies each month.
