- Activity levels across Australia’s services sector rebounded sharply in November after falling to multi-year lows a month earlier.
- Sales and new orders rose sharply over the month. The latter suggests activity levels could improve further in the period ahead.
- Consumer-facing firms drove the improvement, possibly reflecting the impact of Black Friday and Cyber Monday sales.
- Chief concerns from services firms remain cost pressures and an inability to find suitably skilled staff.
Activity levels across Australia’s services sector rebounded sharply in November, providing a welcome signal from the largest employer in the country.
The Australian Industry Group’s (Ai Group) Performance of Services Index (PSI) jumped 4 points to 55.1 last month in seasonally adjusted terms, rebounding after falling to the lowest level since February 2017 in October.
The PSI measures changes in activity levels across Australia’s services sector from one month to the next. Anything above 50 signals activity levels are improving, while a reading below suggests they’re deteriorating.
The distance away from 50 indicates how quickly activity levels are expanding or contracting.
So at 55.1, activity levels not only improved last month, they did so at a faster pace. While slower than the levels seen earlier this year, activity has now improved in each of the past 21 months.
“After easing in recent months, the pace of expansion in the Australian services sector bounced into higher growth territory in November as sales and new orders both accelerated,” said Innes Willox, CEO at the Ai Group.
In trend terms, all five activity subindexes posted readings above 50 last month, indicating stronger levels than a month earlier.
As mentioned by Willox, there were some sizeable improvements in sales and new orders, lifting by 8.8 points and 9.4 points respectively. The lift in the latter is a pleasing development given it is deemed to be a lead indicator on activity levels in the future.
“Businesses will be hoping the November bounce is shown to be more than a bring-forward of holiday-season spending and is sustained over coming months,” Willox said.
Despite the pickup in activity last month, the employment subindex eased by 4.4 points, indicating that the pace of hiring slowed from the levels seen in October.
Margin pressures also remained acute despite a slower increase in input costs, partially reflecting that end prices to customers continued to decline during the month.
In stark contrast to the themes seen over much of the past two years, the rebound in activity levels across the sector was driven by consumer-orientated sectors, rather than those catering for other businesses.
“There were mixed results across the diverse services sector with consumer-facing sectors such as retail and hospitality services reporting stronger results than some of the business-facing service sectors such as finance and insurance, transport and wholesale services which contracted during the month,” Willox said.
“Consumer sales were buoyed by changing seasonal patterns in spending as Christmas sales were brought forward and events such as ‘Black Friday’ lifted turnover.”
So while a good sign for household spending, the boost from Black Friday and Cyber Monday sales for retailers may not be sustained given Christmas demand was likely brought forward.
More broadly, Willox said the chief concerns from respondents in the latest survey was cost pressures and an inability to find suitably skilled staff.
“An inability to increase selling prices as input prices remain elevated put pressure on margins for services businesses even as activity levels expanded,” he said.
“Local skills shortages remain a top concern for some businesses.”
On Friday, the Ai Group will release its separate Performance of Construction Index for December. If recent form is to be repeated, it’s unlikely to be pretty, especially for the residential construction sector.
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