The Australian Services Sector Is In The Worst Shape Since The GFC

The Australian services sector is in the worst shape since March 2009, thanks to low selling prices, sales and orders in July.

The Australian Industry Group’s Australian Performance of Services Index fell 2.1 points to 39.4, signalling a significant contraction in activity. Readings below 50 represent a contraction; this is the first time the PSI has fallen below 40 outside of the GFC.

PSI was 41.5 in June.

The services sector has been contracting since February 2012, thanks in part to low business and consumer confidence and a high AUD driving some purchasing overseas.

Although the AUD has dropped more than 10% since May, AIi Group said its fall had yet to boost activity in the services sector.

The sector shed jobs for the 4th consecutive month, with the Ai Group reporting sharp employment reductions in wholesale trade, hospitality and property and business service sub-sectors. Only the retail trade sub-sector grew.

One in five businesses said political uncertainty was the main factor affecting their activity and forward orders, so Kevin Rudd’s weekend announcement of a September 7 election could give firms some reprieve.

“Activity in the business-oriented services sectors remains weak,” Ai Group CEO Innes Willox reported.

“Business margins remain under intense pressure, with the Australian PSI indicating strong rises in input prices and particular weakness in selling prices.

“Together with the sharp contraction in new orders in July, this margin pressure does not suggest a pickup is imminent in activity or employment over the next few months.”

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