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Services sector decline eases in SeptemberAustralian PSI

Sep 2013: 47.1USA ISM PSI

Aug 2013: 58.6Eurozone flash PSI

Sep 2013: 52.1UK CIPS PSI

Aug 2013: 60.5Japan Markit PSIAug 2013: 51.2

China HSBC PSIAug 2013: 51.8

KEY FINDINGS

The latest seasonally adjusted Australian Industry Group Australian Performance ofServices Index (Australian PSI

) improved by 8.1 points to 47.1 points in September.

This was the highest level for theAustralian PSIsince March 2013 (49.6 points), but itremains below the 50-point mark that separates expansion from contraction in this survey.

The Australian PSIhas been below 50 points for 20 months (since January 2012), whichis its longest run of continuous contraction since the series commenced in 2003.

All of the activity sub-indexes that make up the Australian PSIimproved in September,but remained below 50 points, indicating continuing net contraction.

Only the health and community services sub-sector expanded in September (in three-month moving average terms). All other sub-sectors that make up the Australian PSI

remained below 50 points, indicating net contraction relative to the previous month. Businesses noted that confidence and activity had improved in September following the

Federal election, but this positive effect was weak at best. Declining investment activity from

the mining industry, relatively cautious consumer spending and cheap imports were still

acting as brakes on local demand for consumer and business services alike in September.

ACTIVITY SUB-INDEXES

The sales sub-index in the Australian PSI

increased by 12.9 points to 48.4 points inSeptember 2013. This was the highest level for sales since March 2013 (50.8 points).

The new orders index in the Australian PSI increased by 8.0 points to 47.9 points. Thiswas a welcome improvement for this leading indicator of demand, but was insufficient to

push it into expansion. It has been below 50 points in every month since June 2012. The employment sub-index in the Australian PSI improved marginally, up 1.1 points to

46.6 points in September. This sub-index has been below 50 points since March 2013. Supplier deliveries improved strongly in September but indicated a mild net contraction in

deliveries overall (under 50 points), with the sub-index jumping by 12.2 points to 46.4 points. Inventories (stocks held by companies) continued to contract in September, albeit at a

milder pace. The inventories sub-index improved by 8 points to 44.3 points in September. Capacity utilisation across the services industries improved by 5 percentage points to

76.2% of current capacity being utilised, the highest such rate since March 2013.

PRICES SUB-INDEXES

Input prices increased more strongly in September, with the input costs sub-index in theAustralian PSI

rising 1.4 points to 66.3 points, indicating the highest proportion of

businesses reporting input price increases since September 2012. Businesses said this was

due to the recent fall in the Australian dollar pushing up the prices of imported inputs, as

opposed to the carbon tax which was perceived to be the main reason for stronger input

price rises last September.

Wage pressures moderated further in September, with the average wages sub-index in theAustralian PSI

falling 2.6 points to 57.0 points in September. This suggests wage inflation

is cooling already, following the usual seasonal spike in July as the annual minimum wage

rises and other pay rises commence at the start of the new financial year.

Selling prices are still contracting on average, albeit at a slower pace. The selling pricessub-index in the Australian PSI improved by 4.3 points to 47.5 points in September. Thissub-index has been below 50 points in every month since October 2011, reflecting the

fierce price competition that is apparent especially in the retail sales sub-sector.

MEDIA CONTACT

Tony Melville

Australian Industry Group

Tel: 02 6233 0716

SEPTEMBER 2013

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RETAIL TRADE; WHOLESALE TRADE *

The retail trade sub-sector in the Australian PSIcontinues to exhibit weak demand andvarious pricing stresses, with the retail trade index falling 1.9 points to 42.6 points in

September (in three-month moving average terms). The retail trade sub-sectors index has

been under 50 points (indicating net contraction) in every month since June 2011, reflecting

a protracted period of tough trading for this industry due to the high dollar and cautious

consumer spending on discretionary (mostly non-food) goods.

The wholesale trade sub-sector in the Australian PSIappears to be improving since itsrecent low point in May this year. This sub-sectors index improved by 3.2 points to 41.5

points in September (in three-month moving average terms). The wholesale sub-sector

remains in net contraction (under 50 points) however, as it has in every month since

February 2011 (in three-month moving average terms).

HOSPITALITY; HEALTH SERVICES; RECREATIONAL SERVICES *

The accommodation, cafes and restaurants sub-sector (hospitality) followed a broadlysimilar track to the retail trade sub-sector in September, falling 0.5 points to 36.3 points

(three-month moving average). This sub-sector is being affected by the same consumer

caution regarding local discretionary spending as retail trade, plus significant leakage in

local holiday spending to increasingly popular overseas holiday destinations (monthly ABS

data continues to show record numbers of Australian residents now holidaying overseas).

The personal and recreational services sub-sector was, until recently, doing better thanthe hospitality or retail trade sub-sectors, but in September it slipped further below 50 points

for a second consecutive month. This sub-sector fell another 4.7 points to 43.9 points (three

month moving average), breaking a run of expansion that was evident earlier in 2013.

The large health and community services sub-sector was the only sub-sector to showexpansion this month in the Australian PSI. It improved by 1.9 points to 55.8 points, in a

third consecutive month of expansion (above 50 points, three-month moving average).

PROPERTY AND BUSINESS SERVICES; FINANCE SERVICES *

The property and businessservices sub-index improved by 1.1 point to 39.2 points inSeptember. Despite the improvement, this sub-sectors index remained below 40 points for

a fourth consecutive month, signifying extremely tough trading conditions. Businesses in

this sub-sector include real estate, accounting, legal, engineering, recruitment and

administrative services. They indicated that although local business-to-business demand

has picked up since the Federal election in early September, it remains relatively weak.

The finance and insurance sub-sectors index improved by 7.6 points to 38.6 points inSeptember (in three-month moving average terms). This sub-sector appears to be

experiencing a lull in demand from business customers, as business transactions, business

credit, re-financing and re-insurance slow down. This sub-sector has had index readingsunder 50 points (indicating net contraction) in each of the past six months, following an

extended period of expansion over the previous two years (from April 2011 to April 2013).

COMMUNICATION SERVICES; TRANSPORT SERVICES *

The communications sub-sectors index indicates demand for new products and servicesremains weak, with the index falling by 0.7 points to 39.2 points in September. The index for

this sub-sector has remained below 50 points since November 2011 (three-month moving

average), including an extended period below 40 points throughout 2012 and early 2013.

The transport and storage services sub-sectors index improved by 3.6 points to 37.4points in September, but it has languished below 40 points in every month since January

2013 and recorded readings below 50 points since July 2012 (three-month moving

averages). Businesses say this transport downturn is due to the flow-on effects of weak

consumer demand in the retail sector as well as low residential and commercial buildingactivity, requiring less goods and materials to be transported. The expanding transport

needs of the mining sector (which is in the process of growing its output volumes

considerably) are mainly benefiting freight transport providers in Queensland and Western

Australia (e.g. bulk freight services by rail and long-distance road carriers).

Seasonally

adjusted index

Index

this month

Change from

last month

12 month

average

Seasonally

adjusted index

Index

this month

Change from

last month

12 month

average

Australian PSI

47.1 +8.1 44.0 Supplier Deliveries 46.4 +12.2 44.0

Sales 48.4 +12.9 Input Prices 66.3 +1.4 61.8

New Orders 47.9 +8.0 Selling Prices ** 47.5 +4.3 44.8

Employment 46.6 +1.1 Average Wages ** 57.0 -2.6 56.9

Stocks 44.3 +8.0 Capacity utilisation ** 76.2% +5.0 75.0%

All sub-sector indexes in the Australian PSI

are reported as three-month moving averages (3mma), so as to better identify the trends in these volatile monthly data. ** Unadjusted.

What is the Australian PSI

?The Australian Industry Group 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 isdeclining. The distance from 50 is indicative of the strength of the expansion or decline. For further economic analysis and information from the Australian Industry Group, visithttp://www.aigroup.com.au/economics. *For further information on international PMI data, visit http://www.markiteconomics.com or http://www.cipsa.com.au. The Australian Industry Group, 2013. 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 bereproduced 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, financial or investment advice and does notconstitute financial 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 inthis 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 financial or other decision. The AustralianIndustry Group accepts no responsibility for any act or omission by any person relying in whole or in part upon the contents of this publication.