Weak consumer confidence means services sector is not so sweet

Jane Harper
November 06, 2012
Herald Sun

THE services sector has contracted for a ninth straight month as poor consumer confidence continues to ravage the industry.

Transport and storage, retail trade and wholesale trade were among the weakest performers in October, according to the Australian Industry Group’s latest index readings.

The index climbed 0.9 points to 42.8 points, but is still languishing below the 50-point threshold, indicating a contraction in activity.

Ai Group chief Innes Willox said the services sector, which accounts for about 75 per cent of the economy, was “clearly struggling”.

“With activity weak and businesses in the sector operating in a market that is forcing them to cut their prices, there is clearly strong scope for further interest rate relief in the lead-up to Christmas,” he said.

The gloom was echoed in separate research from the Australian Chamber of Commerce and Industry, which found business conditions deteriorated in the September quarter.

All indicators, except for labour costs, deteriorated in September, falling deeper into negative territory.

General business conditions deteriorated, according to ACCI’s business expectations index, which fell 0.8 points from the June quarter to 43.6 points.

The index measuring businesses’ expectations of their performance for the next year fell 2 points to 41.1.

A reading below the neutral 50-threshold indicates businesses are more pessimistic than optimistic.

ACCI director of economics Greg Evans said the figures put further weight behind calls for a cut in the official interest rate when the Reserve Bank board meets today.

But companies’ long-term outlook was more optimistic, according to a separate study from credit reporting agency Dun & Bradstreet.

Capital investment expectations have hit their highest level for nine years, with the projection index reaching 20 for the March 2013 quarter. This is five points up on the December quarter and 14 points higher than the 10-year average of six.