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Struggling service sector improves over Christmas despite self imposed lockdowns & staffing shortages

The Australian Industry Group’s Performance of Services Index (PSI) shows that things are beginning to look up despite the service sector struggling through a difficult holiday period. 

Service sectors included in the index are, business & property services, logistics, retail trade & hospitality, Health & community, and personal recreation services.  

PSI grows over summer 

The Australian PSI is a leading indicator of services activity in the Australian economy, taking samples for over 200 businesses. A PSI reading above 50 points indicates that services activity is generally expanding; below 50, it is in decline. 

The PSI rose by 6.6 points to 56.2 points over the summer holiday period pointing to an improvement in conditions compared to November 2021.

Surprisingly this was the highest monthly PSI result since June 2021.

Innes Willox, Chief Executive of the national employer association Ai Group, commented that “Although patchy and in the face of considerable adversity, the performance of Australia’s services sector rose over the December-January period with sales, employment and new orders all growing compared with November.

“This rebound in performance followed a slump in the months affected by the Delta outbreaks in the south-east corner of the country and points to a partial recovery from the September quarter fall in GDP.” 

Two-speed service economy 

Results were mixed across the different sectors taken into account by the index. While some reported robust growth, others fell behind.

Despite the positive overall result, retail & hospitality continued to suffer through summer. 

Mr Willox said, “Strong performances in the business & property services, logistics and health & education industries contrasted with the steeper contractions experienced by retail & hospitality and personal, recreation & other services businesses over the summer.” 

Hospitality and retail saw a contraction of 7.3 points on the index. Indicating that hospitality businesses were particularly affected by the COVID-19 Omicron variant. Similarly, The personal, recreation & other services sector saw a decline of 6 points. 

The effects of the COVID-19 omicron wave impacted consumer spending. However, suppliers reported strong demand from business customers, particularly in the construction and agricultural sectors.

Health, education and community services saw an impressive turnaround, gaining 7.1 index points over the summer. Respondents noted a surge of pent-up demand over the lockdown period lifted the activity of health & education providers.  

Supply and staff issues continue to impact the service industry 

Supply chain disruption, input cost increases and staff shortages were reported across all sectors in the index. 

The PSI shows input prices increased in December and January, marking a solid year of increases following a record low in June 2020. However, at the same time, the index indicated that selling prices expanded over the summer, marking a year of increases in selling prices. 

Wages moderated over the summer period but continued to show considerable growth on 2020’s numbers. Taken together, these factors indicate an increase in inflation pressure.

Over the same period, many businesses faced considerable challenges in finding staff and sourcing goods.

“Businesses reported a slight easing of input price and wages pressures compared with November while selling prices rose, indicating a belated and partial recovery of earlier cost rises.

The rise in employment, while encouraging, came alongside numerous reports of the unavailability of staff and appears likely to reflect businesses hiring staff to cover for the workforce impacts of the Omicron wave,” Mr Willox said.

Mr Willox says that the service industries recovery despite the challenges “points to considerable resilience and continuing difficulties as the sector transitions to living with COVID while confronting staff shortages and supply chain disruptions.” 

Read more:Free RSA courses expected to ease NSW’s hospitality staff shortages

Read more:International Borders: Ai Group says it’s time for Australia to open up

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Heidi Heck

Heidi Heck

Heidi Heck is a Journalist at Dynamic Business. She is a student at the University of Queensland where she studies Journalism and Economics. Heidi has a passion for the stories of small business, as well as the bigger picture of economics.

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