Australia's enormous services sector went backwards in March

Photo: Bryn Lennon/ Getty.

While activity levels across Australia’s manufacturing sector grew at the fastest pace in 12 years last month, that performance was not replicated in the nation’s vast services sector. According to the latest performance of services index (PSI) released by the Ai Group, activity levels actually fell in March after rising modestly in February.

The Ai Group’s PSI fell 2.3 points to 49.5 in March, indicating that activity levels contracted fractionally compared to February.

Like a PMI report, a reading of 50 indicates that activity levels remained unchanged from one month earlier, with a figure below 50 indicating that activity levels are contracting.

Like the headline index, the internals of the report were disappointing.

Sales fell 6.3 points to 49.4 while employment, stocks and supplier deliveries all contracted. New orders remained in expansionary territory at 51.9, although the pace of growth was slower than that seen in February.

The Ai Group uses three month moving averages for the surveys subindices to reduce month-to-month volatility in each component.

The chart below, supplied by the Ai Group, reveals the movements of the surveys components, comparing the result to those seen in February and the 12-month average.

By individual sector, six of nine recorded readings that were stable or expansionary with health and community services, responsible for a large proportion of labour market hiring last year, recorded the fastest expansion at 58.4.

Retail trade, transport and storage along with property and business services all continued to contract, fitting with recent weakness in Australian retail sales and a slowdown in the east coast property market.

In the wake of the lacklustre March report, Innes Willox, Ai Group CEO, called on the government to assist business investment in the upcoming federal budget.

‚ÄúConsumer-facing sub-sectors in hospitality, health and recreational services continued to expand while the business-facing sub-sectors of transport & storage and property & business services remained in contraction,” said Willox in response to the March report.

“The ingredient missing from a more robust performance remains the continuing business restraint particularly in relation to investment. There is clearly scope for measures to be taken in the May Budget to stimulate business investment and confidence.”

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