One swallow does not a summer make and some scratchy data doesn’t mean the entire economy is falling into a hole.
But there have been some nasty surprises in some key economic data points over recent weeks. Today a monthly survey from the Ai Group which tends to be a reasonable leading indicator on consumer spending showed a sharp and sudden reversal in activity levels.
The ANZ-Roy Morgan consumer confidence survey also noted a very sharp downturn in people’s views on the long-term economic outlook.
In a period when household consumption is central to driving economic activity, it helps for consumers to be relatively upbeat, and you don’t want retail sales standing still.
The contraction in the manufacturing survey might be alarming but for the fact that the sector now only accounts for 8% of the economy.
But the services reading is a different story. Services account for more than two-thirds of the Australian economy.
The Performance of Services Index is based on a sample of 60,000 firms across transport, health and community services, the financial sector, hospitality and retail. It surveys companies on sales levels, job creation, new orders, and stocks. Readings above 50 indicate expansion while below 50 signals contraction.
The bad findings in this month’s survey were spread across a range of types of activity. The headline figure fell by 8.9 points to 45.0, signalling overall contraction in the sector. For the sub-indexes, sales crashed 15.7 points to 43.7, indicating a significant reduction in turnover among the companies surveyed, while employment fell 6.5 points to 43.5, a sign of layoffs or reduced job creation plans.
And those sub-index figures are three-month averages, so it’s not just a one-off bad reading taken in a single month.
There was one truly horrifying number at the individual sector level and that was for activity levels in transport and storage, which turned in its worst-ever reading at 32.9, signalling a significant ongoing contraction in an industry that’s all about moving stuff around the country. Look:
“Transport and storage appears to be buffeted by a combination of weak demand from mining and commercial construction and retail trade customers, plus tech changes (and in some cases, regulatory changes) that are affecting pricing, ordering systems and competition,” an Ai Group spokesman told Business Insider.
This matters because a sustained downturn in this survey, as this chart from the Ai Group highlights, can foretell a fall in the all-important economic measure of household consumption.
Just to repeat my initial point: this is not to say that everything’s going to hell in a handbasket. The monthly Ai Group survey is based on responses from 150 to 180 companies each month so it’s always a possibility that this is an outlier, and that the findings from the survey will improve in the months ahead.
But when you combine it with the weak manufacturing sector survey, surprisingly low retail sales levels, a gloomier consumer outlook and then some signs that heat is coming out of the property market at least in terms of volumes, these are not the kinds of data that you want to see sustaining their surprise weakness.