AFTER a challenging year for the services sector the industry ended 2012 in the red according to the latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) which fell 3.9 points to 43.2 in December.
Readings below 50 represent a contraction in activity with the distance from 50 indicative of the strength of the decrease.
After mixed reporting in November, sub-sectors linked to household spending including retail trade and accommodation, cafes & restaurants all reported declines in activity in December. Finance & insurance was the only sub-sector to expand in the month.
Australian Industry Group Chief Executive, Innes Willox, said: "At the end of what was a tough year for the services sector, consumer caution, poor sentiment and the high Australian dollar all continued to weigh heavily on sales to households during the Christmas trading peak.
"For services providers to the business sector, the weak state of manufacturing, and residential and commercial construction is clearly still a major brake on sales and new orders, with transport and telecommunications looking especially weak in December.
"Services businesses relying on public sector purchases are also suffering as governments cut back on their spending. The ongoing softness in the services sector adds to the case for further interest rate cuts early in 2013."
Commonwealth Bank Senior Economist, Michael Workman, said: "The most recent policy easing by the RBA in early December has resulted in the cash rate falling by 1 3/4% over the past twelve months, which should help further boost consumer sentiment and activity in early 2013.
"December's RBA 0.25% rate cut leaves official cash (i.e. 3%) at the 2009 lows when the Bank sliced rates in response to the GFC.
"Further monetary policy easing cannot be ruled out in early 2013, if the fourth quarter CPI reveals benign price pressures and the non mining economy fails to pick up under the dual weight of the strong AUD and significant fiscal tightening at present at both the Federal and State levels.
"Falling interest rates and relatively resilient labour markets and ongoing low unemployment below 5 1/4%, despite soft conditions in many sectors struggling under the weight of the strong AUD, should help underpin consumer confidence and activity as 2013 gets under way," Mr Workman said.
Australian PSI® Key Findings for December:
- The latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell 3.9 points to 43.2 in December (readings below 50 represent a contraction in activity with the distance from 50 indicative of the strength of the decrease).
- The services sector declined 11 months in 2012.
- Over the past year, the majority of service sub-sectors reported only one month of growth.
- Finance & insurance was the only sub-sector to record growth in December (62.8) and it was the best performing sub-sector of 2012 reporting nine months of growth.
- In December 2012 - the new orders sub-index was weaker at 43.7.
- Supplier deliveries declined 8.0 points to 41.9 in December.\
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