The Australian Industry Group Australian Performance of Services Index (Australian PSI®) is indicative of the services activity in the Australian economy, and this index fell 8.9 points to 45 during August 2016 which is below the 50 points level and much below the 53.9 points of July 2016. This is the weakest performance from November 2014. It is to be noted that a reading above 50 points indicates that services activity is generally expanding. Overall, there has been a slip in all five activity sub-indexes – Sales falling 15.9 points to 43.7, new orders falling -4.7 points to 47.5, employment slipping 6.5 points to 43.5, stocks falling 8.4 points to 44.4 and supplier deliveries dropping 8.4 points to 46.1. Thus, there is a need to have confidence-building measures in order to steer productivity while reducing costs. However, key factors impacting the index largely are:
Falling transport and storage activity: The weak transport and storage performance has hurt the index level which lost over 0.6 points to 32.9 indicating a major contraction. As a result, investors are concerned over the economy as transport sector is indicative of the production and trade performance in the country. Moreover, the performance of the sector was weak even though the fuel prices remain subdued. This decline thus mainly is due to the slowing demand from mining and commercial construction and retail trade customers.
Australian PSI® (Source: The Australian Industry Group)
Slowing retail and other sectors performance: Despite transport and storage, there are other major core sectors which have also showed a slow performance. Retail trade lost 10 points to 55 during August. Other major sectors like finance and insurance fell 6.9 points to 55.1 points. Accordingly, investors are concerned that this weak consumer confidence might be an indicator of weakening economy. Other factors like falling manufacturing sector survey, decline in retail sales levels, coupled with challenging property market in terms of volumes, are adding to the concerns of a potential slowdown in the economy.
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