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Services sector eases in May

07-06-2011
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The services sector eased in May according to the latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI).

The seasonally adjusted index fell 1.6 points to 49.9 after a strong lift the previous month (readings below 50 indicate a contraction in activity).

A solid increase in sales (up 5.0 points to 53.2) in the month was not enough to offset drops in employment (48.4) and stock levels (47.6).

While many businesses reported the mining sector was boosting sales and employment, other, more directly trade-exposed sub-sectors cited the strong exchange rate as a barrier to expansion. Caution on the part of households was also recorded as a factor hindering growth in a number of sub-sectors.

"The Australian PSI confirms the economy remains lopsided with the combination of the exchange rate and caution on the part of households, preventing a more widespread recovery taking hold, said Australian Industry Group chief executive, Heather Ridout.

“The sub-sectors exposed to household spending such as accommodation, cafes and restaurants were more likely to report flat or contracting activity during the month. Clearly, the service sub-sectors which are interest rate sensitive, are struggling to gain momentum in a broader environment of soft growth and the RBA should err on the side of caution when it next reviews monetary policy.

"While consumers remain cautious, there were positive signs of improving business confidence with lifts in activity in the professional service sub-sectors including the finance and insurance, communication services and property and business service sub-sectors," Ms Ridout said.

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