ACTIVITY in the services sector declined for the third straight month in March on falls in consumer-based industries, a survey says.
The Australian Industry Group (Ai)/Commonwealth Bank Performance of Services Index (PSI) rose 0.1 point to a seasonally adjusted 48.4 points in March.
A reading below 50 indicates a contraction in activity.
"The modest fall in aggregate services activity reflected further declines in sales, new orders and supplier deliveries," the report said.
Ai chief executive Heather Ridout said the March survey emphasised the "patchy nature" of the economic recovery.
"The sluggish performance of the consumer-related sub sectors illustrates a degree of caution on the part of households, strongly influenced by interest rate increases and the anticipation of further rises," Ms Ridout said.
Start of sidebar. Skip to end of sidebar.
End of sidebar. Return to start of sidebar.
"There is some encouraging news with the rebound in property and business services activity, reflecting recent strength in the housing market."
Commonwealth Bank senior economist John Peters said a withdrawal of stimuli from monetary and fiscal policy were hampering consumer-based services.
The Reserve Bank raised the cash rate by 25 basis points, to 4.25 per cent, at its meeting yesterday, its fifth increase in six monthly meetings.
"Five RBA rate hikes since October 2009, combined with the fade-out of the government's short-term fiscal stimulus targeted at consumers has had some negative impact on consumer-related services sector activity in early 2010," Mr Peters said.
"On a more positive note, business-related services appear to have fared better with a rebounding housing sector and ongoing federal and state government infrastructure spending boosting activity in these areas."
Mr Peters said the soft readings in the services index and the employment sub-component reinforced sluggish activity in the sector.
"However, (Australian Bureau of Statistics) data showing strong jobs growth in the broad economy in recent months, and signalling that unemployment has peaked and is now headed lower, augurs well for future growth in consumer demand for services, despite likely further RBA rate hikes," he said.
Debt futures markets are pricing a 5.0 per cent cash rate by the end of 2010.
Ms Ridout said the March quarter had been a disappointing start to the year in the services industry.
"It reinforces our view that the recovery is yet to gain full traction across the economy," she said.
Services activity fell in all states except in Victoria.
Economy picks up with service sector growth, more home contractsInflation ‘building up’, survey shows
