Australian PSI: Services sector recovery delivers strongest result in almost 18 years

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) rose by 0.2 points to 61.2 in May, indicating a slightly stronger pace of recovery compared to April and recording its highest monthly result since October 2003 (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase).

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Ai Group Chief Executive, Innes Willox, said: “Australia’s services sector maintained its momentum in May with particular strength in logistics; business & property; and retail trade & hospitality services. Health & community services continued to grow and personal & recreation services were broadly stable. The strength in the business-facing services sectors reflects the healthy levels of activity currently evident in the construction, manufacturing, agriculture and mining sectors. Across the services sector, sales and employment grew impressively and input costs, wages and selling prices continue to rise at a steady clip. With existing capacity well utilised, and with reports of labour shortages becoming more common, conditions were in place for a substantial lift in investment in the sector. Although new orders for services grew strongly in May, close attention will now be on the impacts of the latest cluster of cases and the Victorian lockdown on business sentiment in the weeks ahead,” Mr Willox said.

Australian PSI® – Key Findings for May 2021:

  • Four of the five services sectors available in the Australian PSI® indicated expansion in May (see table below); the remaining sector, personal, recreational & other services, was broadly stable (down 0.2 points to 49.8).
  • Four of the five activity indices in the Australian PSI® – sales, new orders, employment, and deliveries – showed positive results in May (see table below), with just the finished stocks index dropping to broadly stable levels (down 9.8 points to 49.3).
  • The input prices index moderated slightly but remained elevated in May (down 1.6 points to 68.1), marking eleven months of increases following the index’s record low in June 2020. The average wages index jumped up in May after moderating in April (up 7.2 points to 63.1), indicating increasing wage pressures for services businesses seeking skilled staff. Selling prices rose for a fourth month to reach a record high as businesses passed on business cost increases (up 2.0 points to 63.4).

Full report (available 8.30am): www.aigroup.com.au/resourcecentre/economics/

Seasonally adjusted

Index this month

Change from last month

12- month average

Australian PSI® sectors

Index this month

Change from last month

12- month average

Australian PSI®

61.2

0.2

50.1

Australian PSI® (trend)

60.9

1.2

49.9

Sales

68.6

2.0

50.5

Employment

56.6

3.7

50.2

Business-oriented services

New Orders

68.3

0.4

50.8

Business & property

58.6

2.0

50.4

Supplier deliveries

52.5

-2.5

48.8

Logistics

66.8

1.6

47.2

Finished stocks

49.3

-9.8

48.9

Finance & insurance

na

na

na

Capacity utilisation (%)

83.8

2.2

76.3

Prices and wages

Consumer-oriented services

Input prices

68.1

-1.6

63.9

Retail trade & hospitality

61.3

1.5

47.5

Selling prices

63.4

2.0

48.5

Health & education

54.4

-0.4

51.6

Average wages

63.1

7.2

56.9

Personal, recreational & other

49.8

-0.2

53.1

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.

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