DECEMBER 2012

SERVICES SECTOR ENDS THE YEAR ON A LOW NOTE

KEY FINDINGS
The latest seasonally adjusted Australian Industry Group/ Commonwealth Bank Australian Performance of Services Index (Australian PSI) fell 3.9 points in December to 43.2. This marks the end of a challenging year for the services sector which declined in all but one of the past 12 months. The low levels of household condence and economic uncertainty reported by businesses during the year appears to have weighed on Christmas spending. After reporting mixed conditions in November, sub-sectors directly exposed to household spending (including retail trade and accommodation, cafes and restaurants) all reported that activity levels declined in December. Declining activity levels were also commonly reported from the rest of the services industry; only the nance and insurance sub-sector reported an expansion in activity during the month. On a more positive note for the sector, input price growth continued to ease in the month and is now well below the average level seen since the start of 2010.

DEC

65 60

AUSTRALIAN PSI

55

60 55 50
Diffusion Index
Increasing

43.2

50 45 40 35

AUST

45
Decreasing

40 35 30 25

NOV

30

EUROZONE SERVICES INDEX

NOV

65 60 55

Sept 11

Sept 12

Mar 10

Mar 11

Mar 12

Dec 10

Dec 11

June 11

June 10

June 12

Dec 12

Sep 10

Australian PSI

3 month moving average

EURO

46.7

50 45 40 35

SECTORS
On a seasonally adjusted basis, only one sub-sector expanded in December, down from three in November (i.e. the activity index of the industry was above 50 points). The property & business services and communication services subsectors recorded particularly sharp falls in activity. This marks the end of a particularly challenging 12 months for the services sector. Over the past year, the majority of service sub-sectors reported that they recorded one or less months of growth. In particular, on a seasonally adjusted basis, both the wholesale trade and communication services sub-sectors recorded no expansions in activity over the year. The nance and insurance sub-sector was the best performing subsector in 2012 reporting nine months of growth.
Decreasing Increasing

Wholesale trade Retail trade Accommodation, cafes & restaurants Transport & storage Communication services Finance & insurance Property & business services Health & community services

OCT

30

NOV

65 60

UK SERVICES INDEX

Personal & recreational services PSI

55 50

10

20

30

40

50

60

70

80

90 100

UK

Diffusion Index

Nov12

Dec 12

50.2
OCT

45 40 35 30

SALES AND CAPACITY

On a seasonally adjusted basis, sales levels contracted further in December. The sales component of the Australian PSI declined 2.8 points to 42.9 points and remains well below the critical 50 point level separating expansion from contraction. Sales growth was weighed down by sharp declines in sales across the property & business services, retail trade and wholesale trade sub-sectors. On the other hand, modest sales growth was recorded in the accommodation, cafes, and restaurants and nance & insurance sub-sectors. Capacity utilisation in the services sector (which is not seasonally adjusted) decreased by 0.6 points to 75.4%, which is in line with the average level recorded since the start of 2010.

65 60
Diffusion Index

85 80
Capacity Utilisation Capacity Utilisation % (Unadj.)

55 50 45 40 35 30 25
Sales

75 70 65 60 55

NOV

65 60

US

USA SERVICES INDEX

55 50

54.7

45 40 35

June 10

Mar 10

Sep 10

Mar 11

Mar 12

Dec 10

Dec 11

June 11

June 12

Sept 11

Sept 12

Dec 12

Supported by:

OCT

30

NEW ORDERS
On a seasonally adjusted basis, new orders contracted further in December. The new orders sub-index decreased by 2.6 points to 43.7. The fall in the new orders sub-index was driven by solid declines in new order levels across the retail trade and health & community service sub-sectors. Falls in new order levels across these sectors was only partly offset by growth in the nance & insurance and the transport & storage subsectors. Businesses noted that falling new orders stemmed from weakness in large parts of the construction and retail sector, as well as some moderation in mining sector activity.

65 60 55
Diffusion Index
Increasing

WHAT IS THE AUSTRALIAN PSI?

The Australian Industry Group Commonwealth Bank Australian Performance of Services Index (Australian PSI) is a seasonally adjusted national composite index based on the diffusion indexes for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI reading above 50 points indicates services activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. More information can be obtained from the Ai Group website www.aigroup.com.au

50 45
Decreasing

40 35 30 25 20
Mar 10 Mar 11 June 11 Mar 12 Sep 10 June 10 June 12 Dec 10 Dec 11 Sept 11 Sept 12 Dec 12

EMPLOYMENT AND WAGES

On a seasonally adjusted basis, employment continued to contract in December in line with declining sales and new orders seen during the December quarter. The employment sub-index fell 4.3 points in December to 44.0. The fall in service sector employment reected solid declines in staff levels across the personal & recreational services, communication services, and property & business services sub-sectors. On a non-seasonally adjusted basis, the average wages index increased by 3.7 points to 58.6 in December to nish the year in line with the average level recorded since the start of 2010. The average wages index was supported during December by solid wage growth across the accommodation, cafes & restaurants and communication services sub-sectors, despite worsening conditions for sales, new orders and employment.

70 65 60
Diffusion Index Average wages
Increasing

55
Employment

50 45 40 35 30
Sept 11 June 11 June 10 June 12 Sept 12 Mar 10 Mar 11 Mar 12 Sep 10 Dec 10 Dec 11 Dec 12
Decreasing

SPONSOR STATEMENT
Commonwealth Bank is delighted to be the sponsor of the Australian PSI and is pleased to be able to provide the expertise of our Chief Economist Michael Blythe as the key spokesperson for the Performance of Services Index. The Commonwealth Bank is one of Australia's premier service organisations and with the majority of the Australian economy being services based we believe this important piece of research will add real value to the industry. It will provide insights and information that have not previously been available. We look forward to continuing to work with the Australian Industry Group to enhance and develop the Australian PSI.

STOCKS AND DELIVERIES

On a seasonally adjusted basis, stock levels (or inventories) in the services sector declined for a second consecutive month in December. The stocks sub-index of the Australian PSI decreased by 3.2 points in the month to 42.8. The solid fall in the index was driven by declining stock levels in the property & business services and the nance & insurance sub-sectors. On a seasonally adjusted basis, deliveries to the services sector contracted sharply in December. The supplier deliveries sub-index decreased by 8.0 points this month to 41.9, just below the 50 point marker of expansion. The sharp decline in the index was driven by activity in the nance & insurance and personal & recreational service sub-sectors.

60 55 50
Diffusion Index Deliveries
Increasing

Stocks

45
Decreasing

40 35 30 25

Sept 11

June 11

June 10

June 12

Sept 12

Mar 10

Mar 11

Mar 12

Sep 10

Dec 10

Dec 11

Dec 12

CONTACT
Innes Willox Chief Executive Ai Group 03 9867 0111
Increasing

INPUT COSTS AND SELLING PRICES

On a non-seasonally adjusted basis, the input prices index fell 3.0 points to 57.7 in December, and is now below the average level recorded since the start of 2009. The average selling prices index continues to point to heavy discounting in the services sector. On a non-seasonally adjusted basis, the average selling prices index decreased by 1.9 point to 43.5 remaining well below the critical 50 point level separating expansion from contraction. The low level of the average selling prices index is consistent with recent weakness in Australian ination more generally, with headline ination recording just 2.0% p.a. in the third quarter of 2012 (and with even smaller price changes for some foods and other consumer goods).

80 75 70 65
Diffusion Index Input Prices

60 55 50
Selling Prices

Michael Workman Senior Economist Commonwealth Bank of Australia Mobile: 0414 870 394 Markit Economics www.markiteconomics.com
The Australian Industry Group, 2012 This publication is copyright. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation, no part may be reproduced by any process or means without the prior written permission of The Australian Industry Group. Disclaimer The Australian Industry Group provides information services to its members and others, which include economic and industry policy and forecasting services. None of the information provided here is represented or implied to be legal, accounting, nancial or investment advice and does not constitute nancial product advice. The Australian Industry Group does not invite and does not expect any person to act or rely on any statement, opinion, representation or interference expressed or implied in this publication. All readers must make their own enquiries and obtain their own professional advice in relation to any issue or matter referred to herein before making any nancial or other decision. The Australian Industry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of this publication.
AIG12484

40 35 30
Sept 11 June 11 June 10 June 12 Sept 12 Mar 10 Mar 11 Mar 12 Sep 10 Dec 10 Dec 11 Dec 12

25

AUSTRALIAN PSI* DECEMBER 2012

December 2012 November 2012 43.2 47.1 SALES 42.9 45.7 NEW ORDERS 43.7 46.3 EMPLOYMENT 44.0 48.3 SUPPLIER DELIVERIES 41.9 49.9 INVENTORIES 42.8 46.0 INPUT PRICES 57.7 60.7 SELLING PRICES 43.5 45.4 WAGES 58.6 54.9 CAPACITY UTILISATION (%) 75.4 76.0
AUSTRALIAN PSI

Monthly Change -3.9 -2.8 -2.6 -4.3 -8.0 -3.2 -3.0 -1.9 3.7 -0.6

Direction Contracting Contracting Contracting Contracting Contracting Contracting Expanding Contracting Expanding

Rate of Change Faster Faster Faster Faster Faster Faster Slower Faster Faster

Trend** (Months) 11 6 6 11 6 2 118 14 41

Results are based on the responses of around 150 companies. Forward seasonal factors were generated by the ABS in April 2012. * Australian PSI data is seasonally adjusted for sales, new orders, employment, supplier deliveries, inventories and input prices. ** Number of months moving in current direction.

If you would like to participate in this survey, please send your details to economics@aigroup.asn.au

Supported by:

Decreasing

45