Activity Expanding, Services Pricing Power Remains Strong

The Judo Bank preliminary PMIs eased in May but still show growth but at a slower pace and driven by services. They suggest that the trough in quarterly growth may have been Q4 2022. The composite moderated to 51.2 from 53, services to 51.8 from 53.7 and manufacturing steady at 48, the 6^th consecutive contraction. The increase in services employment and higher output inflation are concerning elements of the report.

• Faster new orders growth and the associated pickup in employment in the services sector drove growth. Demand for manufactured goods continued to fall with overseas demand soft. Private sector employment grew for the 21^st consecutive month but growth did slow in May but Judo Bank note that it was not because of a lack of demand but because of a “lack of suitable candidates”.
• While there was slower input inflation, robust pricing power especially amongst service providers meant that output inflation rose. Services demand is being supported by increased migration, job advertising and the recovery in the housing market. The pickup in demand and selling prices mean that further rate hikes are a distinct possibility.
• Business confidence rose across the private economy in May in both services and manufacturing, but it remains above the historical average as businesses are concerned about higher rates, inflation and the outlook. Judo Bank observes that while soft, the manufacturing index doesn’t imply a recession.
• See Judo Bank report here.

Source: MNI - Market News/Refinitiv/Bloomberg