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Services sector consolidates though pace slows

16-12-2009
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The services sector remained in positive territory for the second consecutive month in November, according to the Australian Industry Group/Commonwealth Bank Performance of Services Index (Australian PSI).

However, while growth consolidated the pace of expansion eased, with the seasonally adjusted Australian PSI® falling by 2.3 points to 52.5 (remaining above the 50.0 point level separating expansion from contraction).

Despite improving demand, companies are choosing to run down current stock and keep a tight rein on supplier deliveries. 

The recent improvement in business conditions has revived employment in the sector, with the first rise in 18 months.

Australian Industry Group (Ai Group) Chief Executive, Heather Ridout, said: “The services sector remains in the early stages of recovery as we head into the Christmas season.

"While it's encouraging to see the Australian PSI remaining in the black in November, slower increases in sales and new orders confirm a hesitant recovery from the bottom of the trough earlier this year.  Modest growth in consumer incomes and the fading of policy stimulus are the likely reasons for the tentative nature of improvement in the sector," Mrs Ridout said.

Commonwealth Bank Senior Economist John Peters said: "The latest Australian PSI® outcome showing the headline index residing in expansionary territory for the second month on the trot dovetails with other recent economic data. 

“This data indicates the economy is in the early stages of a modest recovery (after avoiding recession in 2009) despite negative headwinds of rising domestic interest rates and dissipating fiscal stimulus.

"Particularly cheerful is the fact that leading indicators such as new orders, sales and employment have all trended higher into expansionary territory.

“The latest Australian PSI employment index stacks up with the employment gains in ABS jobs data in September and October. 

“The ABS jobs data suggests that the unemployment rate may be nearing a cyclical peak. 

“Indeed, the unemployment rate has oscillated around 5¾ per cent for the past six months after rising by 1½ per cent in the previous six-month period. 

“The latest Australian PSI employment result bolsters our view that the peak in unemployment is likely to be in the 6-6½ per cent range this cycle", Mr Peters said.

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