Further evidence this morning that growth in the Australian economy is quite subdued.  The latest Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) showed that with household discretionary spending remaining soft, the services sector was in negative territory in December. Although the seasonally adjusted index was 1.3 points higher in December at 49.0, it remained below the 50 point level, indicating a contraction in activity. Professional business service sub-sectors appear to have stabilised over recent months with activity expanding in December in finance & insurance and property & business services. New orders across services were steady at 50.4.

KEY FINDINGS

■ The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) was 1.3 points stronger at 49.0 in December (readings below 50 indicate a contraction in activity).

■ In three-month moving average terms, the Australian PSI® suggests that the services sector has slipped back after activity stabilised

during the middle of the year.

■ Ai Group members reported that household discretionary spending softened in the lead up to Christmas and that retail sales remained subdued in December

■ The activity index of the hospitality sub-sector has recorded the sharpest falls in recent months, while the retail trade activity index fell below the critical 50 point level in December.

■ Consistent with this, price discounting remained prominent in the retail sector during the month.

The slowing figures for the services industry followed the earlier release of the seasonally adjusted Australian Industry Group-PwC Australian PMI® performance of manufacturing index showing a rise of 2.4 points to 50.2 indicating that manufacturing activity remained broadly unchanged in December.