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Services sector contracts for fourth consecutive month

The performance of the Australian services sector continues to be uninspiring, with political uncertainty surrounding Australia’s hung parliament impacting on demand in August.

Australian Performance of Services IndexThe latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) rose slightly to 47.5 in August, indicating contraction in the sector for the fourth consecutive month (readings below 50 indicate a contraction in activity).

The accommodation, cafes & restaurants sub-sector was flat in August while retail trade contracted once again after a 0.7 percent increase in July, with Australian retailers demanding action from the Government to stimulate retail trade once again. The expansion in activity in communication services, wholesale trade and finance & insurance, largely due to employment growth, wasn’t enough to lift the sector’s overall performance.

Australian Industry Group Chief Executive, Heather Ridout, said private demand has not yet replaced the Federal Government’s fiscal stimulus as a driver of services demand.

“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.” she said.

Commonwealth Bank Senior Economist, John Peters, expects demand for services to return from the private sector as consumers become more confident about the future and as asset prices appreciate.

“The latest Australian PSI readings are consistent with the latest national accounts, which revealed retail spending by consumers (roughly 40 percent of total household spending) edged up by just 0.3 percent in the June quarter. In contrast, the non-retail areas of household spending expanded by 2.3 percent 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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David Olsen

David Olsen

An undercover economist and a not so undercover geek. Politics, business and psychology nerd and anti-bandwagon jumper. Can be found on Twitter: <a href="http://www.twitter.com/DDsD">David Olsen - DDsD</a>

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