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Services sector ends 2015 on a weak note

The services sector ended 2015 on a poor note, with activity falling in December for a third month following weak demand and heavy discounting before Christmas.


The Australian Industry Group’s Performance of Services Index (PSI) dropped 1.9 points to 46.3 points in December, falling further below 50, indicating the sector is contracting at a faster pace.

Ai Group chief executive Innes Willox said the survey’s respondents said spending before Christmas was selective.

“Businesses reported an early onset of price discounting as competitors tried, largely without success, to maintain sales volumes,” he said.

Mr Willox said the outlook for the start of 2016 was far from encouraging, with another decline in new orders continuing falls that began in September.

During December, only the health and community services and personal and recreational services sub-sectors enjoyed a lift in activity.

Hospitality was steady, while the seven remaining sub-sectors all contracted.

Of note was the downturn in activity in the property and business services, which dropped to it lowest level June.

The sub-sector enjoyed solid expansion in the third quarter of 2015, but conditions deteriorated in the last two months of 2015.

Respondents to the survey put the poor end to 2015 down to commercial banks increasing their mortgage interest rates in order to meet increased capital requirements set by the financial regulator.

A cooling housing market, and ongoing weakness in business-to-business services also weighed on the sub-sector.

But CommSec’s chief economist Craig James said the survey’s results didn’t appear to line up with other recent retail or business surveys, employment data or anecdotal evidence.

“Retail sales are growing at a normal four per cent annual pace; Christmas sales figures were solid; and employment in the services sector has been soaring,” he said.

“So the services gauge may be more of an outlier at present.”

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