Services sector 'resuming growth'

The Australian Industry Group-Commonwealth Bank performance of services index (PSI) rose five points to 54.5 index points in February.

The results took the index back above the 50-level, which separates expansion from contraction, with services sector growth having contracted since November.

The index results showed that stronger growth in sales and new orders, and renewed inventory-building, underpinned the improvement in February.

However, the improvement was largely confined to the wholesale trade and property and business services sectors.

Commonwealth Bank chief economist Michael Blythe said there were encouraging signs that the services sector was shrugging off some of the restraining influences that weighed on the sector for much of 2006.

"A period of stability in interest rates, lower petrol prices and an exceptionally good labour market performance are underwriting an improved economic tone in the early part of 2007," Mr Blythe said.

Activity expanded in six of the nine sectors during the month, up from five sectors in the previous two months.

The index showed that there was also an increase in employment in February, following falls in three of the past five months.

While the strongest growth was in wholesale trade and property and business services, the steepest declines in activity were in finance and insurance as well as health and community services.

Australian Industry Group chief executive Heather Ridout said it was still premature to get excited about the index's improvement in February.

"We shouldn't get too excited about this month's (February) Australian PSI figure given that the pick-up was largely confined to two sectors and follows several months of soft activity," she said.

"Whether the improvement is consolidated in the months ahead will depend on the course of business and consumer sentiment, particularly the impact of continued uncertainty around interest rates and fuel prices."