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Employment and wages growth across Australia’s services sector — the largest employer in the country — went backwards in April.

New orders continued to decline while margin pressures remained intense. Sales remained weak.

Firms said slow wage growth, tight consumer discretionary spending, and competition from abroad is making it difficult to pass on price rises to customers.

The trends suggest the loss of momentum in the Australian economy in the second half of last year had likely extended into 2019.

Employment and wages growth across Australia’s mammoth services sector went backwards in April, reflecting a continued decline in new work.

That’s a major concern, not only because the services sector is the largest employer in the country but also because the RBA is banking on strong hiring to help lift economic growth, wages and inflation in the years ahead.

The Australian Industry Group’s (Ai Group) Performance of Services Index (PSI) rose to 46.5 in April after seasonal adjustments, up 1.7 points on the level reported in March.

PMIs measure changes in activity from one month to the next, in this case for Australia’s services sector. A reading above 50 points to an improvement while a sub-50 figure indicates a decline. The further away from 50, the faster the improvement or deterioration is.

So at 46.5 in April, activity levels declined at a slightly slower pace than a month earlier. However, activity has now weakened for four consecutive months, and the details of the report weren’t all that pretty.

According to the Ai Group, employment fell, wages went backwards as sales and new orders continued to decline, albeit at a slower pace than a month earlier.

In trend terms, employment across the sector is now declining at the fastest pace since early 2016, a result at odds with the recent acceleration in hiring reported in official data from the ABS.

The wages subindex was also fairly dire, dropping by a substantial 10.9 points to 48.2 in seasonally adjusted terms, the lowest level on record.

The new orders reading for April, at 44.6, is a not a great sign for activity levels in the future given it is deemed to be a leading indicator. In trend terms, new work is declining at the fastest pace since 2013.

Margin pressures also remained acute with input costs continuing to rise at a decent clip while selling prices declined at a faster pace.

“Increased competition from overseas sellers, slow wage growth and tight consumer discretionary spending have all led to a fall in the number of services businesses reporting that they are able to increase their prices in recent months,” the Ai Group said.

Fitting with weaker sales and a decline in new work, supplier deliveries declined at a faster pace while inventories were largely unchanged.

Despite the decline in reported sales and new orders, capacity utilisation across the sector lifted to 79.5% during the month, a result that would normally indicated improved prospects for business investment in the period ahead. However, that appears unlikely given the continued deterioration in conditions being reported elsewhere.

Ai Group

As seen in the table above from the Ai Group, the weakness was broad-based last month with activity levels across all sub-sectors aside from hospitality declining from the levels seen in March.

Unlike the headline PSI and activity sub-indexes which are seasonally adjusted by the Ai Group, the gauges for sub-sectors are presented in trend terms to eliminate volatility often seen from month to month.

“Hospitality stood out as the one bright spot of positive sector activity in April, with businesses in this sector more likely to benefit from April’s extended run of public and school holidays than those in other sectors,” the Ai Group said.

So the improvement there may have been caused by one-off factors.

Activity levels at retailers remained dire, deteriorating at a faster pace than a month earlier. That’s a concern given this sub-sector is the largest individual employer in Australia behind healthcare.

“Retail trade remains particularly weak,” the Ai Group commented.

While another concerning report card on the largest and most important business sector in Australia, the Ai Group said the weakness in April may have been as a result of disruptions caused by Easter and the ANZAC Day holidays.

“For many business-oriented services businesses, the disruption to trade from the combination of holidays led to weak customer demand in April, with a number of businesses noting slower sales and enquiries,” it said.

Some respondents also noted “increased competition… as constraining activity and exerting downward pressure on prices”.

The ongoing drought in Australia’s eastern states was also a seen as a drag on activity, as was difficulty in obtaining finance for customers operating in the construction industry. Caution ahead of the federal election was not nominated as a factor behind the weakness in demand.

Although the PSI is deemed to be a “soft” data indicator, reflecting what firms are reporting rather than actual activity on the ground, the persistent weakness seen in recent months suggests the slowdown in the Australian economy in the second half of last year likely continued into 2019.

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