A spur of new orders for goods gave a glimmer of hope to Australia's services sector industry in June and possibly in the coming months.

Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) said in a report today that the new orders sub-index expanded for the first time since October last year. Four out of the nine sub-sectors recorded growth in June - unchanged from May.

The report noted that the country's services sector has not fully recovered and still in the negative territory for nearly 12 months now. The seasonally adjusted index dropped 1.4 points to 48.5 to remain below the 50 point level separating expansion from contraction.

Australian Industry Group Chief Executive, Heather Ridout, said: "The overall flatness of the services sector in June is further evidence of the lopsided nature of the domestic economy and points to the vulnerability of the sector to further interest rate rises. The flow-on impacts to key service industries of the ongoing sluggishness in the overall construction sector is seen in the poor performance in the property and business services and transport and storage sub-sectors.

"The improvements in activity in consumer-related sectors are a tentative sign that businesses may be expecting consumers to shrug off some of the caution that has been evident over much of the past year. While encouraging, the lift in new orders and the gradual improvement in the trend in the broader Australian PSI® over recent months is occurring against the background of a lengthy period of contraction experienced by the sector," Mrs Ridout said.

Commonwealth Bank Senior Economist, John Peters, said: "The June Australian PSI® result showing the headline index still stuck below 50.0 is disappointing but understandable given the negative headwinds of the strong Australian dollar and past RBA rate hikes which continue to buffet the economy. Also, media commentary about more RBA rate hikes later in this cycle, and wide media coverage of the Greek debt crisis have also helped deflate consumer optimism and spending. On a more positive note, it is heartening to see that the sales and new orders components are in expansionary territory and four of the nine segments in the services sector are still expanding.

"Looking ahead, a continuing strong Australian dollar over the second half of 2011 and ongoing signals from the RBA that interest rates will need to rise at some stage are likely to continue to dampen consumer spirits and spending activity - despite ongoing resilient jobs growth and solid wages growth. Consumer anxiety has translated into a sharp lift in savings as a share of disposable income to 11.5% in the first quarter of this year," Mr Peters said.

Australian PSI® Key Findings for June:

  • The Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) fell 1.4 points to 48.5 in June (reading below 50 indicate a contraction in activity).
  • June's index marks the tenth negative reading in the past twelve months.
  • The new orders component of the Australian PSI® expanded slightly in June (50.3).
  • Four of the nine sub-sectors expanded in the month - unchanged from the previous month.
  • Personal & recreational services, accommodation, cafes & restaurants, retail trade and finance and insurance sub-sectors expanded in the month.
  • Slowing commercial construction and property sales were cited by respondents in the wholesale trade, property & business services and transport & storage sub-sectors as impacting activity.
  • Queensland recorded the strongest services growth in June as reconstruction gathered momentum.
  • The sales of services component of the Australian PSI® grew in June with the sub-index recording a reading of 51.6.