Australia’s larger services industries continue to drive gains in the sector

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Seasonally-adjusted activity in Australia’s services sector strengthened again in April.

The Ai Group’s latest Performance of Services Indicator (PSI) reading rose by 1.3 points to 53.0:

Source: Ai Group

The PSI measures changes in activity levels across Australia’s services sector from one month to the next, ranging from a score of 0 to 100.

A reading of 50 is deemed neutral, meaning that activity levels were unchanged from a month earlier. Anything above this level indicates that activity levels improved, while anything below suggests they deteriorated.

Momentum above 50 is a positive sign for the economy’s transition away from the mining boom, as the services sector is now the largest employer in the country.

Of the nine industry sub-sectors, growth in activity is still focused on property and business services, wholesale trade and finance & insurance. In fact, they were the only 3 sub-sectors which reported a reading above 50 in April, showing that the headline figure is still driven by growth in the larger sectors.

“Respondents to the Australian PSI® noted that suppliers to infrastructure construction projects experienced stronger demand. In other sectors, respondents reported lower customer demand due to the large number of public holidays in April this year,” the Ai Group said.

Within the headline figure, results showed that four of the five activity sub-indexes showed modest gains in April.

“Sales rose to 55.0 points, new orders improved to 54.5 points, employment continued to grow (but at a slower rate than the previous month, at 51.9 points) and supplier deliveries moved into growth (53.1 points) from contraction. Stocks continued to shrink in April but at a slower pace, registering 47.0 points in the month,” the report said.

This table shows the monthly movements across both activity and price sub-indexes:

Source: Ai Group

Interestingly, the table shows a stronger rise in momentum for wages in the sector.

“The wages sub-index indicated an acceleration in wages pressures, with this sub-index lifting by 4.3 points to 59.8 points in April. This was the ninth month of expansion for this sub-index (results over 50 points),” Ai Group said.

“It suggests services businesses are facing stronger wage pressures again in 2017, after an extended period of very weak wages and prices growth in 2016.”

Elsewhere in the price sub-indexes there was moderate growth in input prices and capacity utilisation, but selling prices remained subdued.

“Selling prices have been mostly flat or contractionary over the past year, reflecting a highly competitive sales environment that makes it very difficult for most services businesses to pass on costs increases to their customers,” Ai Group said.