Services expand but tough for retailers

Trevor Chappell
(Australian Associated Press)

Activity in the Australian services sector is still expanding but at a slower pace, with business conditions variable across sectors and states.

The retail and hospitality trades are finding conditions particularly tough as higher household electricity costs and slow wages growth curb consumer spending.

Retailers are also feeling the pinch of growing competition from online operators and offshore sellers.

The Australian Industry Group on Wednesday said all businesses are being affected by rising energy costs, which is putting pressure on margins and proving difficult to pass on to customers already reluctant to spend.

The Australian Industry Group’s Performance of Services Index (PSI) fell 0.9 points to 52.1.0 points in September, but stayed above the 50-point level signifying expansion.

The overall services sector has now expanded for seven months in a row.

However, Ai Group chief executive Innes Willox said, while the big services sub-sectors are doing reasonably well, growth is not broad-based.

“Some big variations in conditions are still apparent across sectors and across states,” Mr Willox said in a statement.

He said business-oriented sub-sectors such as property and business services, finance and insurance, and communications are reporting positive demand generated by the construction and mining sectors, mostly in the eastern states.

But retail and hospitality services are experiencing reduced spending by consumers due to higher household electricity costs, flat wages growth, and poor consumer confidence.

Businesses in Western Australia are finding it tougher than those in the eastern states.

Six of the nine services sub-sectors in the Ai Group’s index expanded in September.

Personal and recreational services; finance and insurance; communications; and health, education and community services grew at a faster rate.

Wholesale trade grew at the same rate, and growth in property and business services slowed.

Activity in the retail sector shrank at a faster pace, the hospitality industry contracted to a record low, and transport and storage slipped back into contraction.

Overall, growth in sales, employment, new orders and stocks was slower.

Selling prices continue to fall, reflecting the strong Australian dollar that makes imported goods and services cheaper; tough competition; weak consumer demand; and weak inflation.


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