Australia AI Group Services Sector Index Slows For Third Month

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

for October published Friday

                      October  Change Over September

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

Australian PSI           51.4                   -0.7

Sales                    48.1                   -4.8

New Orders               51.5                   -0.4

Employment               53.3                   +1.9

Stocks                   54.8                   +3.0

Supplier Deliveries      51.7                   -0.9

Input Prices             61.2                   +4.4

Selling Prices           50.7                   +3.3

Average Wages            55.8                   -0.4

Capacity Utilization     78.9                   +1.8

     FACTORS: The services index expanded for the eighth consecutive month in

October but the pace slowed for the third straight month.  Four of the five

activity sub-indexes were in expansion in October, as sales slipped into

contraction, new orders and supplier deliveries expanding at a slower rate,

while stocks and employment growth accelerated.  

     There was marked variation across sub-sectors. The hospitality sub-sector,

which consists of accommodation, cafes and restaurants, contracted to a

four-year low of 36.2 in trend terms as consumers remained cautious with their

discretionary spending. Retail contracted for a seventh straight month but at a

slower pace than in September. Wholesale growth slowed but remained in

expansion. Activity in the very large finance and insurance sub-sector and the

communication sub-sector both continued to expand, but at a slower pace. 

However, the large property and business sector posted a strong rise in the pace

of activity. 

     In terms of price indicators, input prices rose on high energy costs while

wages growth decelerated slightly. Selling prices also posted a strong gain,

moving the index back into positive growth territory.

     TAKEAWAY: The continued slide in service sectors in October, particularly

in consumer services, will be troublesome for the Reserve Bank of Australia,

which is counting on stronger consumer spending for its growth outlook. So these

downbeat data will reinforce its lower-for-longer rate policy stance. 

     COMMENTS: AI Group Chief Executive Innes Willox noted the easing in the

service sectors growth, arguing there is no reason for the RBA to raise interest

rates: 

     "While still growing, momentum eased in the services sector in October with

sales falling and the pace of growth in new orders slipping. There was still

enough growth across the sector for businesses to lift the pace of employment

growth. Businesses saw wages and other input costs continue to rise but were

restrained from passing on these higher costs to their customers with selling

prices barely in positive territory for the month. There is certainly nothing in

the Australian PSI for October that points to the sort of pressure on consumer

prices that would have the Reserve Bank lifting interest rates next week,"

Willox said.

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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