Australia AI Group Services Sector Expands But at Slower Rate

--Retail Contracts for 6th Month, Hospitality at Record Low

--Very Large Finance and Insurance Sub-sector Highest Since July 2015

     SYDNEY (MNI) - - From AI Group Performance of Services Index (Australian

PSI) for September published Wednesday.

                      September  Change Over August

---------------------------------------------------

Australian PSI             52.1                -0.9

Sales                      52.9                -0.6

New Orders                 51.9                -2.3

Employment                 51.4                -1.1

Stocks                     51.8                -3.1

Supplier Deliveries        52.6                +2.9

Input Prices               56.8                -2.5

Selling Prices             47.4                -0.1

Average Wages              56.2                -1.5

Capacity Utilization       77.1                -4.3

     FACTORS: The services index expanded for a seventh consecutive month in

September but the pace slowed for the second straight month as new orders,

stocks and employment expanded at a slower rate. All the five activity

sub-indexes were in expansion in September but there was marked variation across

sub-sectors. The hospitality sub-sector which consists of accommodation, cafes

and restaurants contracted for 21 months and fell to a record low of 35.7 in

trend terms as consumers remained cautious with their discretionary spending.

Retail contracted for sixth straight month but wholesale remained in solid

expansion. The very large finance and insurance sub-sector rose to the highest

level since July 2015 and communication expanded further to the highest result

since July 2007.

     In terms of price indicators, input prices fell despite high energy costs,

wages weakened and selling prices was little-changed but in the contraction

territory at 47.4 points.

     TAKEAWAY: The growth in the services industry continues to be driven by

business oriented sub-sectors with demand mainly coming from the construction

and mining sectors, predominantly in the eastern states. The survey continues to

highlight the disconnect between the business and consumer sectors, which is

also evident in the National Australia Bank's monthly business surveys. This

disconnect is a key reason for lack of any material upgrade in the Reserve Bank

of Australia's growth and inflation outlook and supports the case for the cash

rate to remain on hold for longer.  

     COMMENTS: AI Group Chief Executive Innes Willox said the services sectors

are doing reasonably well at present, but growth is not as broad-based as he

would like. 

     "Across all of the services sub-sectors, input prices remained a key source

of frustration, with rising energy costs putting pressure on margins across the

board. These cost increases are proving difficult to pass on in the current

environment of weak background inflation and reluctant consumer spending,

coupled with fierce online and offshore competition," Willox said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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