A weakening in business-related services has driven a significant fall in the national services sector, according to the latest Australian Industry Group/Commonwealth Bank (Ai Group) Australian Performance of Services Index (PSI).

The Australian PSI fell by 5.5 points to end at 44.1 in April where readings below 50 represent a contraction in activity, and the distance from 50 indicative of the strength of the decrease.

Ai Group’s CEO, Innes Willox, said that the falls was driven by declines in sales, new orders and employment levels as businesses look to cut costs in response to a weakening domestic demand.

“The fall in the April Australian PSI® was largely driven by the weakness in business-related services.  The result highlights the low levels of business confidence; the impact of actual cuts in government spending; and fears of further spending cuts in the coming federal budget,” Mr Willox said.

The slow down in the mining sector has compounded the already precarious position of the services industry.

"It is disappointing but not surprising that business-related services sub-sectors continue to struggle against the negative headwinds of the strong Australian dollar and substantive fiscal tightening under way at both the Federal and State government levels,” The Commonwealth Bank’s Senior Economist, John Peters said.

"On a brighter note, the latest Australian PSI® hints that historically low interest rates, along with more recent positive news about the global growth outlook, particularly in Asia and the US, and associated resilient commodity prices (like iron ore prices), equities, and other asset classes looks to be helping boost household – related services and consumer sentiment and activity generally in early 2013. Hopefully this trend will continue to gain momentum over 2013 and spread to business sentiment and activity in the quarters ahead," Mr Peters said.

Australian PSI® Key Findings for April:

  • The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell 5.5 points to 44.1 in April (readings below 50 represent a contraction in activity with the distance from 50 indicative of the strength of the decrease).
  • Business-oriented services sub-sectors saw the steepest declines in activity most notably the transport & storage sub-sector which reported its worst trading conditions since the survey started in 2003.
  • On the other hand, activity has risen across the hospitality, health & community services, and personal & recreational service sub-sectors for three consecutive months.
  • The new orders sub-index fell by 5.2 points to 43.6 points and this sub-index has now indicated contraction (below 50 points) since June 2012.
  • On a seasonally adjusted basis, employment contracted in April after expanding in both March and February, with the employment sub-index falling 4.1 points in the month to 46.1.

The full PSI report can be found here