Australian services sector contracts again

Activity in Australia's services sector contracted further in September, ending the quarter on a low note, according to a private survey released on Wednesday by the Australian Industry Group (Ai Group). The Australian Industry Group/Commonwealth Bank Performance of Services Index (PSI) was 0.5 points weaker at 41.9 in September. Readings below 50 indicates a contraction in activity with the distance from 50 indicative of the strength of the decrease. The PSI has been below 50 each month since February. Sales and new orders across the service sector were hampered in September by ongoing weakness in manufacturing and construction, Ai Group said. Uncertainty in the mining sector was a concern for business, which negatively affected activity, it said. The survey showed that only two of the nine services sub- sectors expanded in September, with accommodation, cafes and restaurants performing the best. The communication services, transport and storage, and personal and recreational sectors continued to struggle. Australian Industry Group Chief Executive Innes Willox said conditions in the services sector continued to deteriorated in September reinforcing the need for Tuesday's interest rate cut by the Reserve Bank of Australia (RBA). "This easing in monetary policy should help build momentum behind the tentative signs of improvement this month in activity in health and community services and accommodation, cafes and restaurants and reduced rates of contraction in other household- related sub-sectors, including retail and wholesale trade," he said in a statement. "However, at the same time, the overall state of the services sector, which is being squeezed between low selling prices and rising costs, including from the carbon tax, suggests that further rate reductions will be needed before the sequence of negative news is reversed."