Services decline eases as household wallets loosen

A leading private sector survey of the services industry has found the pace of contraction is slowing.

The Australian Industry Group - Commonwealth Bank Performance of Services Index (PSI) was 2.1 points higher at 45.3 in January, but still below the 50-point level that would indicate expansion.

According to the PSI, Australia's services sector has gone backwards every month for the past year.

The report's authors say many businesses pointed to slowing mining activity as a drag on growth, while retail businesses also reported a relatively quiet January sales period.

Property and business services, transport, wholesale and communications posted the steepest declines in activity.

Four sub-sectors expanded in January, with cafes and restaurants posting the biggest improvement at 73.8, finance and insurance was at 61.5, personal and recreational services at 56.6 and health and community at 50.6.

The Ai Group's chief executive, Innes Willox, says there is a clear divide between those services targeted at households and those with other businesses as their customers.

"A weakening in local mining investment was always expected at some stage during 2013 or 2014, but it is clearly coming much earlier than was previously anticipated," he noted in the report.

"Other traditional business service customers - particularly residential and commercial construction - are not yet ready to pick up the ball.

"With the exception of retailers, the services sub-sectors that depend primarily on household spending are faring better, with consumer spending on local services still expanding modestly."

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