Australia AI Group Services Sector Index Expands for 6th Month

     SYDNEY (MNI) - From AI Group Performance of Services Index (Australian PSI)

for August published Tuesday.

                      August  Change Over July

----------------------------------------------

Australian PSI          53.0              -3.4

Sales                   53.5              -6.8

New Orders              54.2              -1.0

Employment              52.5              -4.4

Stocks                  54.9              +4.1

Supplier Deliveries     49.7              -4.8

Input Prices            59.3              +0.4

Selling Prices          47.5              -1.6

Average Wages           57.7              +2.6

Capacity Utilization    81.4              +3.2

     FACTORS: The services index expanded for a sixth consecutive month in

August but the pace moderated as sales, new orders and employment growth eased,

and supplier deliveries fell slightly into contraction. The details were mixed

with some sectors at record or multi-year highs, while hospitality fell to a

multi-year low and retail contracted further. Capacity utilization rose to a

record high at 81.4%, which was well above the 12-month average of 76.7%. Retail

trade contracted for the fifth straight month as respondents saw increasing

price and product competition from online and offshore sellers. On the other

hand, wholesale expanded at a marginally faster rate, likely reflecting better

business-to-business trading activity and an increase in distribution activity

generated by local and offshore internet sales to consumers. Hospitality fell to

the lowest level since June 2013, marking the 20th month of contractionary or

flat conditions as consumers remained cautious with their discretionary

spending. The small personal and recreational services sub-sector rose to a

record high, as consumer appeared to be redirecting their discretionary spending

to this sector's personal and home-based services, instead of retail goods and

hospitality services. The large property and business services sub-sector fell

by 1.6 points to 51.2 points but has now expanded in 11 of the past 12 months.

The very large finance and insurance sub-sector's index rose to the highest

monthly result since May 2016 and the communications services sub-sector

increased by 4.3 points to 61.4 points, a record high outcome. On the prices

front, wages and input prices rose further in August but consumer inflation

remained subdued with selling prices falling in the month

     TAKEAWAY: The growth in the services industry continues to be driven by

business-to-business services while consumers remain very reluctant to do

discretionary spending. The survey continues to highlight the disconnect between

the business and consumer sectors, which is also evident in the National

Australia Bank's monthly business survey. That disconnect needs to be resolved

for the Reserve Bank of Australia to feel confident that household consumption

won't be a drag on the economy's growth prospects. 

     COMMENTS: AI Group Chief Executive Innes Willox said the positive momentum

continued in the services sector as a whole. The current expansion completing

its sixth month but within the sector experiences varied.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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