gs

Increasing

Key Findings
60

Diffusion Index

55 40 50 35

Increasing Decreasing

SERVICES SECTOR REMAINS IN NEGATIVE TERRITORY Key Findings

Decreasing
50

Key Findings
55

Increasing

DECEMBER 2011
DEC 49.0
70 65 60

60 45

AUSTRALIAN PSI

KEY FINDINGS
The latest seasonally adjusted Australian Industry Group/

Diffusion Index

55 50 45 40 35

EUROZONE SERVICES INDEX

June 09

June 10

June 11

Mar 09

Sept 09

Dec 09

Mar 10

Sep 10

Dec 10

Mar 11

Sept 11

Dec 11

Commonwealth Bank Australian Performance of Services Index (Australian PSI) was 1.3 points stronger at 49.0 in December (readings below 50 indicate a contraction in activity). In three-month moving average terms, the Australian PSI suggests that the services sector has slipped back after activity stabilised during the middle of the year. Ai Group members reported that household discretionary spending softened in the lead up to Christmas and that retail sales remained Australian PSI 3-month moving average subdued in December The activity index of the hospitality sub-sector has recorded the sharpest falls in recent months, while the retail trade activity index fell below the critical 50 point level in December. Consistent with this, price discounting remained prominent in the retail sector during the month.

55 40 25
Mar 09 June 09 Sept 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10 Mar 11 June 11 Sept 11

Sept 09

June 09

June 10

June 11

Sept 11

Mar 10

Sep 10

Mar 11

Dec 09

Dec 10

Dec 11

Diffusion Index

35 30 25

50 45 40

Australian PSI

3-month moving average

Decreasing

Dec 11

Decreasing Increasing

60 45 30

NOV

30

June 09

June 10

June 11

Mar 09

Sept 09

Dec 09

Mar 10

Sep 10

Dec 10

Mar 11

Sept 11

35 30 25

Dec 11

Australian PSI

3-month moving average

NOV

70 65 60

Decreasing

Increasing

Wholesale trade Australian PSI Retail trade

3-month moving average

47.5

55 50 45 40 35 30

SECTORS
On a seasonally adjusted basis, activity expanded in three of Decreasing Increasing

Accommodation, cafes & restaurants Transport & storage Communication services Wholesale trade Finance & insurance Retail trade Property & business services Accommodation, cafes & restaurants Health & community services Transport & storage Personal & recreational services Communication services Wholesale trade PSI Finance & insurance Retail trade 0 Property & business services Accommodation, cafes & restaurants
Decreasing Increasing

Personal & recreational services Communication services PSI Finance & insurance 0 10 Property & business services Health & community services 20 30 40 50 60 70 80 90 100

UK SERVICES INDEX

the nine services sub-sectors in December, down from four inNovember. Wholesale trade the professional business service sub-sectors Activity levels in appear to have stabilised in recent months while conditions in Retail directly sub-sectorstrade exposed to household spending generally remain subdued. ion, cafes & restaurants in the finance & insurance and property & Activity expanded business service sub-sectors during December, while activity Transport & storage hospitality and retail trade sub-sectors. contracted in the Ai Group members continue to note that uncertainty and low ommunication services levels of consumer confidence are key factors hindering economic activity throughout Finance & insurance the services sector. In addition, low levels of commercial construction activity and weak property sales in recent months have contributed to weaker erty & business services levels of activity.

MAR OCT NOV 52.1

Decreasing

Increasing

70 65 60 55 50 45 40 35

10

20

30

40

50

60

70

80

90 100

Diffusion Index November 11 December 11

Health & community services Transport & storage

Diffusion Index November 11 December 11

h & community services

Sales

Personal & recreational services PSI

65 60

& recreational services services sector declined for a third consecutive Sales levels in the

SALES AND CAPACITY

10

20

30

40

50

60

70

USA SERVICES INDEX

Diffusion Index

month in December. PSI The sales component of the Australian PSI decreased by 1.4 points to 47.0. 0 10 20 30 40 50 60 70 80 90 Sales fell sharply in the hospitality and finance & insurance subDiffusion Index sectors. On the other hand, sales increased in the health & community and November 11 December 11 personal and recreational services sub-sectors. Capacity utilisation in the services sector (which is not seasonally adjusted) eased back to 74.3% in December, and is in line with the average level recorded since the start of 2010.

Diffusion Index November 11

Capacity utilisation

80 90 100 85

OCT MAR NOV 52.0

Sales
100
Diffusion Index

December 11 80
75

30

Capacity Utilisation % (Unadj.) Capacity Utilisation % (Unadj.) Capacity Utilisation % (Unadj.)

55 50

70 65 60 55 50 45 40

65 45 60

Sales 40
55 35 50 65 30

Sales

85 70
Capacity utilisation

80 65 75 60 85 70 55 80 75 60 70

45 60 25 Sales
Mar 09 June 09 Sept 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10 Mar 11 June 11 Sept 11

40 35 30 25

55 50 45

Capacity utilisation

Dec 11

65

Diffusion Index

Sales June 09 Sept 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10

Mar 09

Mar 11

June 11

Sept 11

85

New Orders
30

35

Dec 11

40

Supported by: 55
65 60

AUG OCT MAR

35 30

NEW ORDERS
New order levels were broadly unchanged in December. The new orders component of the Australian PSI remained at 50.4.

35 65 30 60

Increasing Decreasing

Diffus

Mar 09

June 09

Sept 09

Dec 09

Mar 10

June 10

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Dec 11

40 20

The new orders sub-index has hovered around the critical 50 point

25 Employment 55
Mar 09 June 09 Sept 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10 Mar 11 June 11

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

Diffusion Index

level for nine consecutive months.

This suggests that new orders in the services sector have stabilised in

70 45 65 40 35 60 30 55 25 70 50

Diffusion Index

recent months following a prolonged period of decline. Growth in new order levels has recently been highest in the professional business service sub-sectors and lowest in the sectors directly exposed to household spending.

Sept 11

Dec 11 Dec 11 Dec 11

Decreasing Increasing Increasing Decreasing Increasing Decreasing

20 50

Average Wages

Employment
Employment

Mar 09

June 09

Sept 09

Dec 09

Mar 10

June 10

Sep 10

Dec 10

Mar 11

June 11 June 11

Employment
60 40 Diffusion Index

Average Wages

EMPLOYMENT AND WAGES

The employment component of the Australian PSI increased by 1.9

55 35 70
Mar 09 June 09 Sept 09 Dec 09 Mar 10 June 10

40

Mar 09

June 09

Sept 09

Dec 09

Mar 10

June 10

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Stocks50 50

DiffusionDiffusion Index Index

Employment

Stock levels declined for a fourth consecutive month. The stocks component of the Australian PSI increased 6.7 points

Diffusion Index

June 09

Mar 09

Mar 10

Sept 09

June 10

Mar 11

Dec 09

Sep 10

Dec 10

Sept 11

50 35 Diffusion Index

40 25
Mar 09 Mar 10 June 09 Sept 09 Mar 11 Dec 09 Sep 10 Dec 10 June 11 Sept 11 June 10 Dec 11

60 35 Deliveries

Increasing Decreasing

Stocks

45 30

June 11

Dec 11

25 55 40

Decreasing Increasing

to49.9. Stocks increased strongly in the retail trade, transport & storage and finance & insurance sub-sectors. On the other hand, stock levels fell sharply in the health & community services and personal & recreational services sub-sectors.

35 Stocks35
Mar 09 Mar 10 June 09 Sept 09 Mar 11 Dec 09 Sep 10 Dec 10 June 11 Sept 11 June 10 Dec 11

55

50 30 30 60 45

Increasing Decreasing Decreasing

STOCKS

45 45 60 40 40

Dec 11

65 35 60 60 30 55 55

Average Wages

Increasing Increasing Decreasing

points in December to 48.1. Reports of declining staff levels were common across the services sector in December, with only two sub-sectors reporting employment growth in the month. Employment levels fell particularly sharply in the wholesale trade and communication services sub-sectors. The average wages index decreased by 0.4 points to 60.4 in December. Abstracting from monthly volatility, the wages sub-index suggests that services sector wages growth has gradually increased over the course of the year.

Sep 10

Dec 10

Mar 11

Average Wages

45 60 40 55

35 Employment 50
Mar 09 June 09 Sept 09 Dec 09 Mar 10 June 10

Diffusion Index

Sept 11

50 30 65

Employment

Sept 11

20 65 45

Employment

Sep 10

Dec 10

Mar 11

June 11

Sept 11

Stocks70

Dec 11

30 45

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.

CONTACT
Heather Ridout Chief Executive Ai Group work 02 9466 5504 John Peters Senior Economist Commonwealth Bank work 02 9117 0112 mobile 0410 482 500 Markit Economics www.markiteconomics.com
The Australian Industry Group, 2011 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, financial or investment advice and does not constitute 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 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 financial 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.
AIG10890

DELIVERIES, INPUT COSTS AND SELLING PRICES

Diffusion Index Diffusion Index

55 30 80 50 25 75 70 45 40 60

Mar 09

Mar 10

June 09

Sept 09

Mar 11

Dec 09

Sep 10

Dec 10

June 11

Sept 11

Diffusion Index

3.4 points to 50.9. The input prices index increased by 3.4 points to 66.9 in December, and is now slightly above the average level seen since the start of 2009. The average selling prices index increased by 4.5 points to 48.9. Reports of price discounting were common across the services sector in December, with only two sub-sectors reporting selling price growth in the month. The selling prices index of the retail trade sub-sector fell further inDecember.

Deliveries 65

June 09

June 10

June 11

Mar 09

Sept 09

Dec 09

Mar 10

Sep 10

Dec 10

Mar 11

Sept 11

Selling Prices Mar 11 June 11

Deliveries Sept 09 Dec 09 Mar 10 June 10 Sep 10 Dec 10 Sept 11

Decreasing Increasing Decreasing IncreasingDecreasing

Mar 09

June 09

Input Prices

Diffusion Index

AUSTRALIAN PSI*
December 2011 November 2011 AUSTRALIAN PSI 49.0 47.7 SALES 47.0 48.4 NEW ORDERS 50.4 50.4 EMPLOYMENT 48.1 46.2 SUPPLIER DELIVERIES 50.9 47.6 INVENTORIES 49.9 43.2 INPUT PRICES 66.9 63.5 SELLING PRICES 48.9 44.4 WAGES 60.4 60.8 CAPACITY UTILISATION (%) 74.3 75.9 Monthly Change 1.3 -1.4 0.0 1.9 3.4 6.7 3.4 4.5 -0.4 -1.6

Deliveries
Mar 09

Selling Prices Deliveries

Contracting 75 35 Expanding 70 30 Contracting 65 25 Expanding 60 Contracting 55 Expanding 50 Contracting 45 Expanding 40 Lower

Mar 09 June 09

Rate of Change Slower Faster No change Input Prices Slower From contracting Slower Faster Slower Slower
Dec 09 Mar 10 June 10 Sep 10 Mar 10 June 10 Sep 10 Dec 09

Trend** (Months) 3 3 2 4 1 4 Selling Prices Deliveries 107 2 30 na

Mar 11 June 11 Sept 11 Mar 11 June 11 Sept 11 Dec 11 Dec 11

June 09

Sept 09

Sept 09

35 Results are based on the responses of around 200 companies. Forward seasonal factors were generated by the ABS in April 2011. 30 * Australian PSI data is seasonally adjusted for sales, new orders, employment, supplier deliveries, inventories and input prices. ** Number of months moving in current direction. 25
Dec 09 June 10 Sep 10 Dec 10 Mar 09 June 09 Sept 09 Mar 10 Mar 11 June 11

Diffusion Index

Dec 10

Dec 10

Supported by:

Sept 11

Dec 11

Dec 11

Dec 11

Increasing Decreasing

Deliveries

55 35 80 50 75 30 45 70 40 25 65 35 60 30 80 55 25 75 50 70 45 65 40 60 35 55 30 50 Direction 25 45 Contracting 80 40

Selling Prices Deliveries

Input Prices

Increasing Decreasing

The supplier deliveries component of the Australian PSI increased by

Input Prices

June 10

Dec 11

Deliveries to the services sector increased in December.