Australia's services sector is showing signs of life

Photo by Stuart Hannagan/Getty Images

Activity levels across Australia’s services sector – the largest employer in the country — improved slightly in March.

The latest Performance of Services Indicator (PSI), released by the Ai Group, rose 2.7 points to 51.7, indicating that activity levels improved moderately from a month earlier.

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.

The distance away from 50 indicates how quickly activity levels improved or deteriorated.

At 51.7 in March, an increase of 2.7 points on February, that means that activity levels across the sector improved last month after deteriorating previously.

This table from the Ai Group shows how the survey’s individual activity subindices performed in March.

Source: Ai Group

While the headline PSI indicated a modest overall improvement across the sector, the internals of the report were far stronger with sales, new orders and employment all improving, offsetting weakness in stock levels and supplier deliveries.

The improvement in the sales and new orders is a strong result, indicating that demand remains firm at present. The strength in the latter also suggests that activity levels will likely remain supported in the months ahead.

And, perhaps as a result of that improved outlook, hiring across the sector also accelerated last month, a noteworthy result given recent weakness in official labour market reports.

However, it wasn’t all good news.

While overall activity levels across the sector improved, it was not uniform in nature with only five of nine subsectors tracked by the Ai Group recording an improvement from one month earlier.

“Property and business services continued to grow strongly (58.0) while finance and insurance (55.5) and wholesale trade (54.3 points) also experienced solid growth,” the group said.

“Growth in retail trade was modest but steady (52.3 points) while personal and recreational services slowed in March, with its index falling 3.6 points to 51.3 points.”

The modest improvement in the retail and wholesale subsectors is interesting given it runs contrary to the weakness reported in official retail sales reports from the ABS.

The PSI says activity levels are improving, the ABS says they’re not.

“Participants from this subsector said mild autumn weather and demand for household goods by the housing sector were positive factors for retailers in March,” the Ai said.

The health and community services subsector — the largest of all sectors tracked — saw activity levels deteriorate for a third consecutive month.

Elsewhere, activity across the accommodation, cafes and restaurants subsector contracted for a 15th straight month while the communications services subsector contracted for the sixth month in a row.

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