Prashant Mehra
(Australian Associated Press)

Australia’s service sector activity has continued to expand in May, although at a slower pace, with the key employment sub-index slipping into contraction.

The Australian Industry Group’s Performance of Services Index (PSI) fell 1.5 points to a level of 51.5 points for the month, but stayed above the 50-point level signifying expansion.

It was the eighth consecutive month in which headline services activity either expanded or remained steady.

“The services sector slipped down a gear in May with the pace of sales growth falling and employment contracting during the month,” Ai Group chief executive Innes Willox said in a statement on Monday.

Three of the larger sub-sectors expanded in May, but the gains in hospitality, property & business and wholesale services were largely offset by falls in the personal & recreational, communication and health & community services.

Finance, retail trade, health and community services, and communications services shrank in May at similar rates to the previous month, while personal and recreational services fell 3.4 points to 43.9 points, indicating that that sector was contracting at a faster rate.

Input prices continued to rise, but at a slower pace, while wages pressures eased to a 10-month low, reflecting the ongoing weakness in Australian inflation and the labour market.

Mr Willox said the data, while positive, demonstrated the economy’s fragility.

“With the easing of overall performance and the patchiness across the services sector, there is some support for the concern that recent momentum in the economy may be fading,” he said.