Economic Buzz: Australian services activity declines in May

Australia?s services sector contracted in May, with the S&P Global Australia Services PMI Business Activity Index falling to 48.7 from 50.7 in April. This marked the second decline in three months, signalling weaker demand and rising cost pressures.

New business dropped sharply, recording the steepest fall in nearly two-and-a-half years. Orders have now declined for three consecutive months, with both domestic and export demand weakening. Respondents cited rising interest rates, market uncertainty, and the impact of the war in the Middle East as key factors behind reduced activity.

Employment fell for the first time since January 2025, ending a 17‑month streak of job creation. The decline, though modest, was the sharpest since August 2021. Backlogs of work also decreased at the fastest pace in 18 months.

Input costs continued to rise rapidly, driven by fuel prices, while output prices remained close to April?s 39‑month high. The transport & storage sector saw the sharpest increases in both input and output costs.

Business confidence weakened to its lowest level in two-and-a-half years, reflecting concerns over inflation, interest rates, and economic slowdown. The Composite Output Index also slipped to 48.7, down from 50.4, signalling a renewed fall in overall private sector output.

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