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Rate cut call on services slump

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The post-federal election economic boost appears to be fading as latest data shows declining activity in the services sector.

The data increases pressure on the Reserve Bank to reduce interest rates.

The Australian Industry Group Australian Performance of Services Index is down 2.8 points to 46.1 (readings below 50 represent contraction in activity, with the distance from 50 indicative of the strength of the decrease).

“The December Australian PSI result stunted the green shoots that appeared following the federal election with the services sector retreating from the brink of recovery in December,” Ai Group Chief Executive Innes Willox said.

“While sales continued to claw back towards positive territory, both employment and new orders slipped further into the red bringing into question the tentative build in optimism that characterised the previous couple of months.

“Continuing weakness in the important services sector underlines the fragility of the domestic economy at a time when a lift in non-mining related activity is needed to meet the challenge of rebalancing in the wake of the mining investment boom.

“If the services sector does not recover quickly, pressure will build on the Reserve Bank to reduce interest rates further and the task of fiscal consolidation will be made more difficult in the shorter-term.”

Employment fell to 47.7, new orders (43.0) fell by 3.6 points and sales – while fractionally higher than in November at 47.7 – also remained below 50.

While the Christmas rush did see retail trade record its strongest reading since April, rising by 2.4 points to 48.6, it also remained in the red.

Finance & insurance services (65.5) edged 0.9 points higher and was the strongest performing sub-sector.

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