Australian dollar
A customer counts his Australian dollar banknotes at an exchange office in downtown Cairo, Egypt, April 19, 2016. Reuters/Amr Abdallah Dalsh

Service sector has witnessed an impressive start with an upsurge in sales, employment and new orders. The Australian Industry Group's Performance of Services Index (PSI) fell 3.2 points to 54.5 points in January.

Nevertheless, it remained over the 50-point level. In December, the index had risen by as much as 6.6 points to 57.7 points. It was the first time since May 2007 the index had reached such a high level.

Several factors contributed to the positivity seen in December. According to AAP (via News Corp), the Ai Group said survey respondents attributed the growth to strengthening of customer demand, increased orders from mining sector, lower value for the Australian dollar, stability of interest rates, and better agricultural harvests.

Ai Group highlighted a growing confidence from respondents. "Overall, there was a sense of increased confidence from respondents across many services sub-sectors," the group said.

The impressive growth in December came on the heels of a slow recovery in activity in the months of October and November. "Sales and new orders were particularly strong across many services sub-sectors pointing to the likelihood of a strong start to the new year," Ai Group chief executive Innes Willox said.

In January, an expansion was witnessed in four of the five activity sub-indexes. Supplier deliveries rose to its highest level ever – 61 points. On the other hand, personal recreational, finance and insurance and property and business services expanded in the month.

"While growth eased back from the very strong pace seen in December, it was relatively broadly spread across the very diverse services sector and included the highest showing from the wholesale sales sub-sector since the global financial crisis and the related rise in transport and storage services, which entered positive territory for the first time since 2011," Willox said in a statement. "Tempering the generally positive tone and a reminder of the fragility of the economy was the continued contraction in both the hospitality and communication services sub-sectors."

Nevertheless, the health and community services sub-sector did not grow in January. A slump was seen in the communication services and the hospitality sub-sector, including accommodation. An increase was seen in input prices and wage growth. However, selling prices saw flat or contractionary pricing conditions, which was the case through most of last year.

"The services sectors provide the bulk of Australia's economic activity and employment opportunities, so it is crucial to us all that they perform well," Willox said. "Challenges and risks abound in 2017 in Australia and globally, so a solid and supportive policy environment is becoming more urgent than ever."