The services sector slipped back in February, driven largely by a significant drop in new orders across the services sector.
The latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) dropped 5.2 points to 46.7 in the month (readings below 50 indicate a contraction in activity).
New orders fell 8.5 points lower to 45.6.
Finance and insurance and personal and recreational services were the only two sub-sectors to record an expansion in activity.
Australian Industry Group Chief Executive Designate, Innes Willox, said: "The February fall in the Australian PSI and the sluggishness of the sector over recent months illustrate the narrow base of growth in the broader economy. The booming conditions in mining and mining-related activity are not translating into increased activity in large parts of the domestic economy and, with few exceptions, sales and new orders for services and employment in the sector were all lacklustre in February," Mr Willox said.
Commonwealth Bank Senior Economist, John Peters said: "The weakness in the Australian PSI reflects the uncertain growth outlook for some of the services related areas of the economy. There also appears to be an unusually modest level of confidence within the business sector that is holding back new orders despite two interest rate cuts by the Reserve Bank in late 2011. Some favourable stability in financial conditions overseas over the next few months could provide a backdrop which will allow business and consumer confidence to improve and result in a gradual lift in spending," Mr Peters said.