It looks like Australian service sector wages are starting to lift

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Australia’s services sector, the largest employer in the country, saw operating conditions improve modestly last month.

And there’s signs that wage pressures may be starting to build.

The performance of services indicator (PSI) released by the Ai Group on Monday rose by 0.6 points to 51.1 in November, leaving it fractionally above the 50 level that separates expansion from contraction.

The PSI, like the better known PMI reports, measures changes in activity levels across Australia’s services sector from one month to the next.

A figure above 50 indicates that activity levels are expanding while a reading below 50 says that they are contracting. The distance from 50 is indicative of the strength of the expansion or decline seen in any given month.

Source: Ai Group

According to the Ai Group, three of the surveys five activity sub-indexes were above 50 points in November, indicative of improvement.

“New orders lifted 1.7 points to 54.0 points, employment expanded at a slower pace, falling 0.6 points to 52.3 points, while deliveries lifted into positive territory, rising 3.6 points to 51.8 points,” the group said.

Those improvements were offset by weakness in sales and inventory levels with the individual subindices coming in at 48.1 points and 47.0 points respectively, indicating a deterioration from a month earlier.

The Ai Group uses three-month moving averages for its activity subindices to reduced month-to-month volatility.

Source: Ai Group

While a mixed performance, there was better news on the wage and inflation front — of importance when it comes to the outlook for Australian interest rates — with the measures on input prices and wages rising sharply over the month.

At 58.7, the measure on wages was particularly interesting, rising by 3.7 points to the highest level seen in over a year.

It has now risen in each of the past four months.

While just one survey, this suggests that wage disinflation may be at or nearing its end having hit a record-low in the September quarter this year, according to official statistics from the ABS.

“It suggests mounting pressure to raise wages after a period of very weak wages and prices growth earlier in 2016,” said the group.

Innes Willox, CEO if the Ai Group, called the overall result “encouraging”, although he believes that it remains “well short of a convincing rebound from its recent slump”.

“There was mixed news from different parts of this diverse sector,” he said.

“Personal and recreational services grew strongly while health and community services continued a respectable pace of expansion.

“On the other hand, hospitality services slumped again in November as did retail and transport and storage businesses.

“The patchiness across the sector remains of concern and service providers will be looking for further momentum in the pre-Christmas period to provide a strong base for a firmer lift in the early part of 2017,” he concluded.

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