Australia's huge services sector is starting to roar

Australia’s massive services sector continues to expand the release this morning of the AiGroup Performance of Services Index for July showed.

With a rise of 2.9 points to 54.1 the index is now at its highest level since February 2014. On a three-month moving average basis it is at its highest level since December 2009.

That in itself is good news but often it’s the underlying components of these types of indices which give the strongest message on overall health or otherwise of business. So the fact that all five activity sub-indexes of the overall PSI were higher is important for judging the sustainability of this expansion.

AiGroup said sales were up 7.6 points to 60.9 while new orders dipped 1.8 points but still printed a respectable 53.0. Services businesses also increased their stock levels with a rise of 4.2 points to 50.6. Employment climbed back into the expansion zone with a solid rise of 4.4 points to 51.8 “after a brief contraction in June”.

Interestingly while all the activity levels are looking healthy only four of the nine services sub-sectors expanded. That continues to highlight the divergent nature of economic growth within Australia at the moment.

Finance and Insurance dipped 4.0 points to 65.0. But the expansion extended into its seventh month. Retail trade was also higher up another 1.8 points to 53.8, its fifth month of expansion. Wholesale trade rose 2.0 points to 50.4. That’s its first expansion since November 2011. Property & business services surged back with a rise of 9.6 points to 54.5 after nine months of contraction.

But the AiGroup highlighted that “the single largest services sub-sector, health & community services, spent a second month in negative territory (unchanged at 46.7 points).”

That, along with contractions in personal & recreation services which was down 6.2 points to 46.5 and the continued moribund performance of “communications (down 3.1 points to 38.9) and transport & storage (up 1 point to 39.1).” Hospitality was up 7.3 points to 45.8 but it is still contracting, just more slowly.

AiGroup CEO Innes Willox said “The gradual strengthening of the services sector evident over recent months continued in July. While clearly positive both for the services sector and for the economy as a whole, considerable fragility remains.” He added however that the recent Federal Budget and the lower Aussie dollar have helped.

Overall this is a good survey pointing to the continued recovery in the local economy. But, Willox and the divergent strength through the service sector, highlights the recovery remains fragile for the moment.

That said it’s still very good economic news.

Here’s the table:

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