If the latest Commonwealth Bank Composite Purchasing Managers Index (PMI) is anything to go by, all is not well in the Australian economy in early 2019.

Especially in the services sector, the largest employer in the country by some margin.

The “flash” PMI reading fell to 51.5 in January, the lowest level in the three-year history of the survey.

This PMI measures perceived changes in activity levels across Australia’s services sector from one month to the next. Anything above 50 signals activity levels are improving, while a reading below suggests they’re deteriorating.

The distance away from 50 indicates how quickly activity levels are expanding or contracting. So at 51.5, activity levels still improved last month, albeit at the slowest pace in at least three years.

The flash estimate is derived from around 85% of survey responses, and is a fairly accurate guide as to what the final PMI will show when released one week later.

“The Flash PMI shows that the Australian economy entered 2019 on a weakish note,” said Michael Blythe, Chief Economist at the Commonwealth Bank.

“The drivers of the January outcome were mixed, but the divergence between the manufacturing and services components is worth noting.”

As seen in the chart below, it was a sharp deterioration in sentiment from Australia’s services sector that drove the monthly decline, continuing the lumpy downtrend that’s been in pace since early 2017. In contrast, activity levels at manufacturing firms, in aggregate, actually improved a touch compared to December.

Pic: Commonwealth Bank

“Survey respondents have noted some genuine weakening in demand, especially on the services side of the equation. The impact of the drought is also biting in some areas,” Blythe said.

Based on survey responses, Blythe said that the most acute concerns were focused offshore, in particular worries about trade war risks and slower global growth.

He also noted that earlier signs of business inflation pressures have receded, partially in response to step falls in petrol prices.

“Lower fuel prices are now having a restraining influence on business input costs,” he said.

“The backlog of work has edged lower, although poor supplier delivery times remain a source of inflation concern.

“The net effect of these forces is spilling over into some reduction in the pace of output price rises. The low inflation environment of 2018 is spilling over into 2019.”

The latter will not be welcome news for policymakers at the RBA who are already struggling to lift underlying inflation back to within its 2-3% target.

While the headline decline in the flash PMI paints a slightly concerning picture about health of the Australian economy, Blythe says there were positive signals that suggest the weakness in January may not last.

“The leading new orders and employment indexes are also sending a more positive signal than the headline PMI,” he says. “And the more sentiment-driven survey components about activity over the next year remain strongly positive.”

This article first appeared on Business Insider Australia, Australia’s most popular business news website. Read the original article. Follow Business Insider on Facebook or Twitter.