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Services sector sluggish in August

07-09-2010
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The services sector was sluggish in August with the gradual withdrawal of fiscal stimulus and the uncertainty surrounding the national political landscape continuing to impact on demand. 

The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) rose slightly to 47.5 in August remaining below the critical 50 point level for the fourth consecutive month (readings below 50 indicate a contraction in activity).

The accommodation, cafes and restaurants sub-sector was flat in August while retail trade contracted once again. 

The expansion in activity in communication services, wholesale trade and finance and insurance, largely due to employment growth, wasn't enough to lift the sector's overall performance. 

A slump in supplier deliveries and selling prices particularly impacted personal and  recreational services and health and community services.

Australian Industry Group Chief Executive, Heather Ridout, said:  "The continuing sluggish performance of the services sector reinforces Ai Group's view of the ongoing patchiness of the recovery in the broader economy.  Although there are some promising signs among the services sub-sectors, the sector as a whole is yet to feel the full benefits of the gradual re-emergence of private sector demand."

Commonwealth Bank Senior Economist, John Peters, said: "The latest Australian PSI readings are consistent with the latest national accounts, which revealed retail spending by consumers (roughly 40 per cent of total household spending) edged up by just 0.3 per cent in the June quarter.

In contrast, the non-retail areas of household spending expanded by 2.3 per cent in the same period.

"We think that households, buoyed by ongoing labour market strength, a falling unemployment rate, and gifted with real wage increases, and likely rising asset prices in the year ahead, will become more confident and relaxed about the future. They will thus become increasingly less jittery about balance sheet repair, and will boost their spending levels and the breadth of their purchases," Mr Peters said 

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