SYDNEY (XFN-ASIA) - The Australian Industry Group/Commonwealth Bank of Australia Performance of Services Index (PSI) was unchanged in January from December at a seasonally adjusted 49.5, the Australian Industry Group (AIG) said.
It was the third consecutive month that the PSI was below the 50.0 level that separates expansion from contraction.
The largest falls were reported in finance and insurance and property and business services, while activity also contracted in wholesale trade and accommodation, cafes and restaurants.
AIG said drought conditions in much of rural Australia and an interest rate hike by the Reserve Bank of Australia (RBA) in November affected activity.
Commonwealth Bank senior economist John Peters said although the latest snapshot of services sector activity shows soft conditions, there may be an improvement in coming months.
Peters said the weaker-than-expected inflation data for the December quarter means the RBA is unlikely to lift rates again anytime soon which, in conjunction with falling gasoline prices, point to some pick-up in consumer spending.
He said there are also few signs of any softening in current robust national jobs market conditions which should help underpin consumer optimism and associated spending activity in 2007.
The Reserve Bank of Australia holds its first policy meeting for the year tomorrow.
Economists do not expect any change in the central bank's official cash rate, now set at 6.25 pct, as Australia's consumer inflation for the three months to December was the lowest quarterly reading in almost eight years.
The consumer price index in October-December fell 0.1 pct from the previous quarter but was up 3.3 pct year-on-year.
bruce.hextall@xfn.com
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