An indicator that suddenly imploded in Australia’s negative GDP quarter is making a comeback

Photo: Cameron Spencer/ Getty Images.

The AiGroup’s Performance of Services Index is out this morning and it shows continuing broad expansion in the various components of Australia’s vitally important services sector.

The accommodation, cafes and restaurants sector continues to look weak but the large retail sector showed a healthy uptick, up 4.1 points to 55.6.

The PSI report is a diffusion index, with numbers above 50 showing expansion of activity and numbers below 50 reflecting contraction.

Back in August and September – during the quarter that resulted in Australia’s surprise economic contraction – the transport and storage subindex of the PSI survey showed a sudden and sharp contraction into the low 30s, posting its lowest readings in the history of the survey.

The subindex had shown continuing weakness through the December quarter. (Reflecting this, Virgin Australia this morning reported a sharp drop in profits during the December quarter.)

Today’s PSI survey, however, shows transport sector activity back into expansion. Here’s the chart:

Source: Ai Group

Ai Group commented:

The index for the transport and storage services sub-sector lifted into growth in January, rising 2.5 points to 51.6 points. This sub-sector is subject to the flow-on effects of activity in the wholesale and retail trade sectors (as well as from construction and manufacturing goods movements). It is most likely growing in response to the recent pickup in activity in both the retail and wholesale sub-sectors.

Transport activity reflects goods and services being moved around the country. Healthy traffic on roads and aviation routes means people are going to work, cutting deals, buying and selling things, and moving goods around. This resurgence in activity following a deep plunge is a positive sign.