The CBA Services Purchasing Managers Index (PMI) dropped from 52.7 in June to 52.3 in July. The services sector is still expanding. But the pace of expansion is moderate at best. And the July reading represents a new low over the life of the PMI survey.
The slowing in services activity evident around mid year continued into the early part of Q3. As with the earlier CBA Manufacturing PMI, however, services firms maintain a positive view on the outlook for the year ahead and are still hiring in anticipation of rising demand.
The other parallel with the CBA Manufacturing PMI is rising input prices flowing through to prices charged. Higher fuel prices is part of the story. But survey respondents are now “frequently” reporting higher wages and labour costs as well.
The PMI’s: why are they important?
The PMI’s are important because they cover key areas of the economy. They are part of the global suite of PMI releases published by IHS Markit.
Manufacturing activity tends to be cyclical in nature. So turning points in the CBA Manufacturing PMI can provide early warnings signals of turns in the business cycle more generally.
Services activity tends to be less cyclical and is on a long‑run structural uptrend. So the level of the CBA Services PMI is important when assessing the resilience of the Australian economy more broadly.
The PMI’s: how are they calculated?
The PMI surveys cover senior purchasing managers in 400 Australian companies in the manufacturing and service sectors each month. The survey began in May 2016.
Service firms are surveyed each month on how business activity, employment, input and output prices, new and outstanding business and business expectations have changed relative to the previous month.
The survey results are presented as diffusion indexes. These indexes have leading indicator properties and show the direction of change. A reading above 50 indicates expansion. The further above (below) 50 the stronger the expansion (contraction).
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