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Category: Economic Trends / Retail / Hospitality

Services sector turns in worst performance in nearly two years

Monday, 5 Sep 2016 07:53:04 | Michael Janda

Transport and storage services hit a record low of 32.9 points. (ABC TV)

The services sector has suddenly and dramatically slumped from modest growth to contraction in a widely watched private index.

Key points:

  • Performance of Services Index drops to 45, below 50-point level indicating expansion
  • Worst result since November 2014
  • Transport and storage, hospitality and accommodation, property and business services contract the most

The Australian Industry Group's Performance of Services Index for August showed the sector dropping 8.9 points to 45 - a level below 50 points indicates contraction, and the further below 50 the faster that contraction.

It was the lowest result for the sector since November 2014.

The key culprit for the negative result was transport and storage, down another 0.6 points to 32.9 - a record low that indicates the sector is in steep contraction.

This is a particularly worrying outcome given that the health of the transport sector is often indicative of the health of production and trade, given its role in moving goods around the country.

It also comes despite relatively cheap fuel prices that should be assisting the profitability of transport firms.

Some other previously strong sectors are now also firmly in contraction, notably accommodation, cafes and restaurants (43.2 points) and property and business services (46.1 points).

Meanwhile, a lot of the sectors that were previously expanding very strongly have seen that growth slow.

Retail trade fell 10 points last month to 55, while finance and insurance dropped 6.9 points to 55.1 points.

The Ai Group's chief executive Innes Willox said the August results highlight the economy's vulnerability and the need for decisive economic leadership from Canberra.

"The sharp fall in the Australian PSI in August reflected a large drop in sales and slumps in the employment and new orders sub-indexes," he noted.

"When combined with the return to contraction of the Australian Performance of Manufacturing Index (Australian PMI) as reported last week, the disappointing performance of the services sector sounds a sobering warning of the fragility of the economy."

The PSI is based on a survey of around 200 companies every month.

AustraliaPlus


 

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