Services sector 'stuck in the slow lane': Ai Group


Another fall in new orders together with a drop in inventories kept the services sector in negative territory in June

Services sector 'stuck in the slow lane': Ai Group
Services sector 'stuck in the slow lane': Ai Group
July 5, 2010

Another fall in new orders together with a drop in inventories and selling prices kept the services sector in negative territory in June.

Reinforcing the subdued conditions experienced in the sector this year, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index remained below the 50 point level separating expansion from contraction for the second consecutive month.

However, the rate of contraction eased slightly, with the Australian PSI up 1.3 points to 48.8.

Many of the consumer-based subsectors remained in the red in June including retail trade which has not had an expansion in activity for eight months.

Despite the soft conditions, employment in the services sector grew in June.

‘DISAPPOINTING’ RESULT: INDUSTRY

Australian Industry Group Chief Executive Heather Ridout says the services sector has been struggling for the past six months under the impact of successive interest rate rises and the phase-down of fiscal stimulus.

"The performance of the sector reinforces concerns that despite some predictions to the contrary, very important segments of the economy are stuck in the slow lane," Ridout says.

"The disappointing fall in new orders suggests there is little prospect of acceleration over the next few months. Given this environment and the growing global uncertainty, we would expect that interest rates will remain on hold," she says.

KEY FINDINGS

According to the Australian PSI, consumer-related sub-sectors of retail trade and accommodation, cafes & restaurants remained in negative territory in June.

Retail trade has not had an expansion in activity since October 2009.

Meanwhile, personal & recreational services rose significantly in the month.

Across services, the new orders sub-index fell 1.8 points to 46.1.

The employment sub-index lifted in June to 51.8 mostly driven by an overall improvement in personal & recreation services.

Tasmania was the only state to record an expansion in services in June.

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