Australia's services PMI climbed to 53.6 in July, its fastest pace in six months. New orders returned to growth for the first time in five months as firms rebuilt margins through faster price increases.
Alpha Score of 52 reflects moderate overall profile with weak momentum, moderate value, moderate quality, moderate sentiment.
Australia's services sector expanded at its fastest pace in six months in July, with the S&P Global Australia Services PMI rising to 53.6 from 50.5 in June. The second consecutive monthly increase in output was the strongest reading since the start of the year's second half.
New orders returned to growth for the first time in five months, with survey respondents reporting they had been better able to convert opportunities into new contracts during the month. The expansion centred on real estate and business services along with information and communication. Transport and storage remained under pressure. New business from abroad continued to decline, though at a reduced pace, with some respondents attributing the softness to lower tourism numbers.
Business sentiment improved markedly, recovering from June's 31-month low to its highest level since just before the outbreak of war in the Middle East in February. Firms cited tentative signs of improving market conditions and expansion plans as key supports for their 12-month outlook. That improved confidence fed through to hiring, with employment increasing for a second consecutive month at a solid pace. Some firms reported filling previously vacant positions, while others expanded operations. Despite the pickup in staffing, backlogs of work accumulated for the first time in five months as renewed order growth placed pressure on capacity.
Input price growth eased to its lowest in five months, having peaked in April, with panellists linking cost pressure mainly to higher fuel and wage costs. Output price inflation told a different story, reaccelerating at the start of the third quarter to levels close to those seen in April and May. Four of the five broad sectors covered by the survey reported higher charges, led by information and communication. Finance and insurance was the only sector to lower selling prices during the month.
The Composite Output Index, which weights services against manufacturing according to their share of GDP, rose to 53.2 in July from 50.4 in June, its fastest rate of expansion since January. For the first time in six months, output increased across both monitored sectors as manufacturing joined services in returning to growth.
Andrew Harker, economics director at S&P Global Market Intelligence, said the renewed rise in new orders had provided fresh impetus to the sector's expansion. He cautioned that inflationary pressures and ongoing uncertainty tied to the Middle East situation meant growth was not guaranteed to build further in the months ahead. He added that the prognosis for third-quarter GDP was looking more positive based on the historical relationship between the PMI data and official growth figures.
The reacceleration in output price inflation, even as input cost growth slowed, suggests firms are using the improved demand backdrop to rebuild margins. That dynamic could keep services inflation stickier than the headline cost figures alone would imply, a consideration for the Reserve Bank of Australia as it weighs the path for interest rates. The employment and backlog data together suggest capacity pressure is beginning to build, which could feed into wage and price dynamics if new orders continue at this pace. Business confidence at its strongest level since before the Middle East conflict began in February points to a more constructive outlook among firms, though the survey's own commentary flags that geopolitical uncertainty still clouds the durability of the upturn.
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