Services sector subdued

05-07-2011

The services sector was subdued in June and has now been in negative territory for 10 of the past 12 months, according to latest data.

The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) dropped 1.4 points to 48.5 to remain below the 50 point level separating expansion from contraction.

Despite the weak overall Australian PSI result, the new orders sub-index expanded for the first time since October last year. 

Four out of the nine sub-sectors recorded growth in June – unchanged from May.

"The overall flatness of the services sector in June is further evidence of the lopsided nature of the domestic economy and points to the vulnerability of the sector to further interest rate rises Australian Industry Group Chief Executive, Heather Ridout, said.

“The flow-on impacts to key service industries of the ongoing sluggishness in the overall construction sector is seen in the poor performance in the property and business services and transport and storage sub-sectors.

"The improvements in activity in consumer-related sectors are a tentative sign that businesses may be expecting consumers to shrug off some of the caution that has been evident over much of the past year.  While encouraging, the lift in new orders and the gradual improvement in the trend in the broader Australian PSI over recent months is occurring against the background of a lengthy period of contraction experienced by the sector," Ms Ridout said.

Commonwealth Bank Senior Economist, John Peters, said: "The June Australian PSI result showing the headline index still stuck below 50.0 is disappointing but understandable given the negative headwinds of the strong Australian dollar and past RBA rate hikes which continue to buffet the economy. Also, media commentary about more RBA rate hikes later in this cycle, and wide media coverage of the Greek debt crisis have also helped deflate consumer optimism and spending. On a more positive note, it is heartening to see that the sales and new orders components are in expansionary territory and four of the nine segments in the services sector are still expanding.”

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