The CBA Services has released global market research. PMI moved lower in August but firms maintain a positive view on the year ahead. Also, business is reporting that the drought is weighing on growth.
CBA Chief Economist Michael Blythe’s report gives insights into the state of the services sector. His research shows that while the sector’s pace of expansion is the slowest over the life of the survey, firms maintain a positive view on the outlook for the year ahead.
- Growth momentum in the Australian service sector continued to abate in August, with the rate of business activity expansion slowing for a third straight month. The weak rise in activity was reflected by a slowdown in new order growth, which eased to a survey low. Nonetheless, firms recruited extra staff, albeit at the softest pace in seven months. Higher wage bills contributed to strong input price inflation, motivating firms to raise selling prices.
- “The key services component of the Australian economy is growing at only a modest pace. There has been a clear loss of service sector momentum since mid-year. Still high readings for business expectations about the year ahead suggest activity has hit a pothole rather than started a more serious decline”.
- “The slowing reflects a mix of supply and demand factors. Growth in new orders has slowed. Business is reporting that the drought is weighing on growth and competition has increased. Nevertheless, the demand-supply balance is favourable enough to allow business to pass on further rises in salaries and fuel costs into selling prices”.
- Where an increase in activity was reported, panellists generally mentioned that demand pressures were favourable. However, there were reports that increased competition and complications caused by the drought had weighed on business activity. Survey data nonetheless pointed to an overall increase in sales during the month, but, in line with activity, the rate of expansion was the softest in the survey’s history.
- Nevertheless, panellists were generally upbeat about future output prospects. In fact, confidence towards business activity over the coming 12 months strengthened in August to a four-month high. New product launches, forecasts of stronger demand and planned marketing initiatives underpinned optimism.
- Reflective of positive sentiment, firms expanded employment in August. This was despite reports of rising salaries, a key contributing factor towards sharp input price inflation. Panellists suggested that demand conditions continued to warrant higher workforce numbers. That said, the rate of job creation eased to a seven-month low.
- Even with markedly weak growth in staffing levels, unfinished work declined in August for the first time since the survey was incepted 28 months ago amid slower new
business growth. That said, the rate of backlog depletion was only marginal. With input costs rising at a historically marked pace, panellists sought to protect profit margins in August and raised selling charges. The rate of output price inflation accelerated to a four-month high.
Please follow this link for the full report: EconomicUpdate-05-Sep-2018-0900-1.pdf.