The services sector remained in the slow lane in March according to the latest industry data.
The Australian Industry Group – Commonwealth Bank Australian Performance of Services Index (Australian PSI) dropped 2.2 points to 46.5 in March (readings below 50 indicate a contraction in activity).
Solid declines in the retail trade and transport and storage sub-sectors were largely behind March's weaker result.
Sales of services across the sector took a hit dropping 6.2 points to 47.7. The new orders sub-index also contracted further in March.
Australian Industry Group Chief Executive, Heather Ridout, said: "Notwithstanding the very strong outlook in the minerals sector and its implications for the broader economy, consumers and businesses remain highly cautious. As well, trade exposed businesses in the services sector are feeling the competitiveness pinch of the persistently high dollar.
"The important new orders sub-index slipped lower in March and new orders have now fallen for five consecutive months. Service providers are not confident of the immediate outlook and employment in the sector as a whole continues to be weak. The sector is clearly vulnerable to the risk of higher interest rates or Federal Budget measures that would further slow the recovery in private sector demand," Ms Ridout said.
Commonwealth Bank Senior Economist, John Peters, said: "The ongoing sluggish activity in the retail trade, accommodation, cafes and restaurants, and wholesale trade sectors is disappointing but not surprising given the economic negatives impacting firms in these sectors at present. These negative factors include an Australian dollar still posting fresh post-float highs, rising interest rates over the past year, the natural disasters that hit Queensland, Victoria, and Western Australia, and the Japanese and NZ earthquake tragedies over the summer months.”