The services sector was in positive territory in April, according to the latest industry data.
The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) lifted 5.0 points to 51.5 to be above the 50 points mark separating expansion from contraction.
But despite the improvement, the sector continues to face challenging conditions following five months of decline with sales, new orders and deliveries sub-indices all remaining in negative territory in April.
"Businesses in the sector will be keeping a close watch on activity over the next few months for signs of either a more sustained recovery or a return to the weak conditions that have dominated the past eighteen months, said Australian Industry Group Chief Executive, Heather Ridout.
"At this stage in the cycle, it is critical that business and consumer confidence can gather momentum without setbacks in the form of additional interest rate rises or budget measures that detract from private sector activity. The high Australian dollar and lack of support from productivity growth will be a continuing drag on the economy," Mrs Ridout said.
Commonwealth Bank Senior Economist, John Peters, said: "The 5 point jump in the Australian PSI® to 51.5 was heartening after some dismal readings in early 2010 which showed services sector activity trapped in the slow lane. The sharp lift in employment and inventories sub-indices in April is good news.”
But Mr Peters warned there are still “negative headwinds” hampering more upbeat activity in the services sector.
These negative factors include an Australian dollar still posting fresh post float highs near US1.10 (with likely further gains against the USD in coming months), and rising interest rates over the past year (and more likely to materialise over the next year).