Australia's Services Index Up A Huge 8.1 Points But Still Contracting In September

The good news in Australian business data continues with the AiG Performance of Services Index bouncing 8.1 points to 47.1 in September – it’s the highest level since March 2013.

It is important to note that a reading below 50 still signals a contraction. But this is a solid improvement and AiG saw rises in “sales, new orders and supplier deliveries”. The bad news is that health and community services up 1.9 points to 55.8 was the only sub sector in the black while Cafes and restaurants (36.3), retail trade (42.6) and personal and recreational services (43.9, all in 3 month moving averages).

This is clearly still a cause for concern given Australia is 75% services but a sign of hope nonetheless.

The AiG’s CEO Innes Willox was cautiously optimistic noting that this is just the start of a recovery that still needs confirmation:

Business and consumer confidence appears to have lifted since the Federal election in early September, but benefits in terms of actual sales and activity to date are muted. The strong lift in our new orders sub-index for Australia’s services sectors is promising, but it needs to improve further if it is to translate into a real lift in local activity.

The RBA told us again this week that they think monetary policy is working with further benefits of the cuts that have been made to official interest rates since 2011 still to flow through the economy. This services index along with the AiG manufacturing index earlier this week suggest the RBA is right and Australia might finally be on the road to recovery.

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