World Economy

Australia’s Economic Momentum Slows

Australia’s Economic Momentum SlowsAustralia’s Economic Momentum Slows

Activity levels across Australia’s enormous services sector improved for a third consecutive month in May, although at a slower pace than in April.

The Ai Group’s Performance of Services Indicator fell 1.5 points to 51.5, pointing to a marginal improvement in activity levels from one month earlier, Business Insider reported.

The PSI measures changes in activity levels across Australia’s services sector—the largest in the country—from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting. So activity levels continued to improve, albeit at a slower pace than in April.

Fitting with slight moderation in the headline PSI index, the Ai Group said that only three of the survey’s five activity subindices expanded in May.

“Sales increased but at a slower pace than April, at 52.5 points, new orders dropped to 52.8 points and the stocks index rose by 6.6 points to 53.6 points, moving from contraction into growth,” it said.

“Supplier deliveries experienced stable conditions (50.2) while employment fell into contraction at 49.2 from expansion in April.”

The weakness in the latter is particularly disappointing given the sector is the largest employer across the country, and helped to offset continued growth in new orders which is a good sign for overall activity levels in the months ahead.

The group said that the jump in inventory levels—the largest improvement of any component during May—followed a period of weakness in the preceding 12 months.

“Nine of the past 12 months have seen a contraction in stocks, indicating a general decline in inventory levels across the services sector over that period,” the group said, noting that inventory levels had also fallen in each of the prior four months.

Whether the increase was due to an expected lift in customer demand from firms, or a sign that actual demand levels are weakening, is as yet unclear. That’s something that should be watched closely in the months ahead, particularly in relation to the sales sub-index given the relationship between the two.

“Property and business services continued to grow strongly in May, at 56.8 points. The hospitality sector—accommodation, cafes and restaurants—rose by 2.5 points to 54.5 points while the wholesale trade sub-index reduced slightly to 53.7. Transport and storage was stable at 50.6 points, a similar result to April.”

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