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Services sector activity strengthens further in May :Aust PSI

06 June, 2007

Australia's services sector strengthened further in May,underpinned by record levels of consumer confidence, with The Australian Industry Group - Commonwealth Bank Performance of Services Index (Australian PSI®) rising 3.3 points to 56.1 (above the 50.0 level separating expansion from contraction).

Commonwealth Bank Senior Economist, John Peters, said: "The May Australian PSI® readings depicting a lift in services sector activity further underscored the buoyant mood of consumers at present. Indeed, this upbeat mood has been boosted by robust labour market conditions and increasing confidence that more RBA rates action this year is highly unlikely.

"The ongoing, broad-based lift in services sector readings is consistent with other recent data, such as retail sales, business credit, employment and various business surveys, signposting the fact that the non-farm economy has picked up speed in early 2007. Moreover, strong jobs growth, particularly robust full-time jobs growth, has undoubtedly boosted services sector activity, especially in the retail and accommodation, cafes & restaurants segments," Peters said.

Ai Group Chief Executive, Heather Ridout, said the recent upswing in consumer and business sentiment is starting to have a noticeable impact on Australia's services sector.

"The prevailing low rate of unemployment, record levels of consumer confidence and positive business sentiment are beginning to flow through to higher levels of services sales and orders.

"The announcement of further income tax relief in the 2007-08 Federal Budget and the less threatening interest rate environment will contribute to a reasonably positive outlook for the sector in the months ahead. The continued strength of petrol prices will nevertheless weigh on consumers minds," Ridout said.

Australian PSI® Key Findings for May:

Activity expanded in eight of nine sectors, up from seven in the previous month.

The strength in services sector activity was broadly-based, with all sectors excluding health & community services reporting growth in May. Transport & storage and retail trade reported the strongest rates of growth, while personal & recreational services reported a solid rise in activity.

Growth slowed in accommodation, cafes & restaurants and finance & insurance, while activity lifted slightly in wholesale trade.

Positive consumer and business sentiment flowed through to a pick-up in sales and new orders growth in the month, leading to the highest readings for these components for more than three years.

Supplier deliveries increased for the first time in seven months, while employment continued to expand.

Input cost increases eased further in May, with the price of inputs growing at their slowest pace since May 2005.

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