Australia's services PMI eased to 51.9 in September from 53.2, a three-month low, as firms cut staff for the first time since May. Input and output price inflation both accelerated, a combination that could keep the Reserve Bank of Australia leaning hawkish.
The S&P Global Australia Services PMI slowed to 51.9 in September from 53.2 in August, marking a fourth straight month of expansion but the weakest reading in three months. The Composite Output Index, which blends services and manufacturing, slipped to 51.3 from 52.7, as growth stayed confined to services while the contraction in factory output deepened.
Hiring turns negative as orders soften
New business kept growing across the services sector, but at the softest pace of its current three-month run. Export orders rose for the first time since April, though only marginally, which firms credited to business development efforts.
Softer demand fed through to staffing. Service providers cut headcounts for the first time since May, only the third such decline in five years. The cut was marginal, but with staff numbers down while orders still rose, backlogs of work increased for a third month, though only slightly.
Price pressures build even as growth cools
Input costs rose on higher fuel, labour and other expenses, with consumer services reporting the sharpest increases. Firms passed more of those costs on to customers, and both input cost and output price inflation accelerated from August and stayed above their long-run averages. Business confidence about the next 12 months remained positive but fell to a three-month low.
S&P Global said faster output price inflation across the private sector suggests consumer prices could stay elevated in coming months, which could keep the RBA leaning hawkish. That leaves the central bank weighing a softening economy against stubborn inflation.
Mixed signal for the Australian dollar
The survey sends mixed signals for the Australian dollar and interest rate pricing. Slower activity, job shedding and weaker confidence argue against further tightening, while accelerating output price inflation supports the case for the RBA to stay hawkish.
On balance, the inflation detail is likely to matter more to rate pricing, which limits the downside for the Australian dollar and front-end yields from the softer activity numbers. Fuel costs were again cited as a driver of input prices, so the oil price remains an important input to the RBA's inflation outlook.
Source: Investinglive
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