Mild growth for services sector in July

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) rose by 2.9 points to 51.7 in July but the growth was scattered across industries showing a two-speed services sector emerging, hampered by labour costs and skills shortages.

Business and property, and personal services grew dramatically in July, while retail and hospitality, and logistics fell dramatically.

“Chronic labour shortages and a super-charged winter spike in absenteeism are large and growing challenges for labour-intensive service industries,” said group executive Innes Willox.

“And rising interest rates are dampening consumer sentiment, casting a shadow over consumer-facing sectors.”

The data also showed that health and community services were significantly down compared to previous months mainly due to staff shortages.

Meanwhile, three of the services activity indicators were positive and improved, reflecting resilience in some activity, while two contracted, services capacity utilisation rose slightly to 80.3 per cent, similar to the June result and above the long-term average.

Customer demand in some sectors remains robust, but increased input costs, labour shortages and concerns about future demand impacted services businesses in July.

In comparison to the Australian Industry Group data, the S&P Global Australia Services PMI fell to 50.9 in July 2022 from a final reading of 52.6 in June, marking a sixth consecutive month of expansion in the Australian service sector.

However, this growth was also noted to be the slowest rate of growth in the current sequence.

Both activity and new business grew at the softest rates in six months amid reports of interest rate hikes and inflationary pressures dampening overall demand conditions.

Similarly, new export business growth eased to the slowest in five months. Workforce expansion continued into July despite continued mentions of staff shortages by some firms.

Meanwhile, Australian service sector firms noted a rise in spare capacity, as indicated by a renewed decline in the level of outstanding work. Turning to prices, severe inflationary pressures remained as the rate of increase in prices charged surged to a survey peak. Overall business sentiment dipped to a 27-month low.