A welcome lift in new orders and sales took the services sector into positive territory in August according to the latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®). The seasonally adjusted index rose 3.3 points to 52.1 in the month (readings above 50 indicate an expansion in activity).

Strong growth in the finance & insurance and communication services sub-sectors drove the August result. While personal & recreational services was also in the black in August, other sub-sectors related to household spending remained soft.

Australian Industry Group Chief Executive, Heather Ridout, said: "The lift in overall services sector activity comes after a protracted period of sluggish performance. The positive overall result reflects strong expansions in the personal & recreational, finance & insurance and communications services sub-sectors. However, the overall improvement masks declines in performance across the remaining six service sub-sectors.

"The ongoing patchiness across the sector reflects a lack of confidence on the part of households and businesses. Further, it underlines the fragility of the sector in the face of the strong Australian dollar, heightened uncertainties and our high interest rates," Mrs Ridout said.

Commonwealth Bank Senior Economist, John Peters, said: "The August Australian PSI® move above the 50 level into expansionary territory to 52.1 is welcome news after a period of lacklustre activity. Mirroring trends and patterns in the wider economy, there were divergent growth outcomes across services segments. Strong growth was posted in the finance & insurance, communication services, and personal & recreational services segments. The other six segments were still stuck in contractionary territory as they continued to struggle for traction under the triple headwinds of a record high Australian dollar, and a cautious and timid consumer saving madly and refusing to open the purse strings, especially in retail areas.

"It is also heartening to see that all the sub components of the Australian PSI® rose above the 50 mark in August. Leading the way was wages (66.7), input prices (60.9), new orders (53.9), inventories (52.3), employment (52.1), and sales (51.2). Looking ahead, we see local GDP growth picking up to around 4% in 2012, on the back of the stellar terms of trade. Such an outcome is likely to drive solid jobs growth and further falling unemployment - a combination that should help lift consumer spirits and spending activity," Mr Peters said.

  • Australian PSI® Key Findings for August:
  • The services sector was back in positive territory in August following a boost in new orders and sales.
  • The seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) rose 3.3 points to 52.1 in the month (readings above 50 indicate an expansion in activity).
  • The strong results in the personal & recreational, finance & insurance and communications services sub-sectors drove the August result.
  • Aside from personal & recreational services, all other sub-sectors related to household spending remained soft in August.
  • The new orders sub-index rose 4.7 points to 53.9.
  • Sales of services also rose in the month (51.2).
  • Despite the stronger overall August result, less encouraging for employers is the lift in the wages sub-index to its highest level in almost three years (66.7).
  • Respondents cited economic uncertainty and weak consumer confidence as affecting services growth.