RBA move unlikely as services growth slows

Growth in Australia's services sector slowed in October for the third straight month, making a Reserve Bank rate move next week less likely, Ai Group says.

Australian services sector growth slowed for a third straight month in October, further reducing chances of a Reserve Bank rate rise next week.

The Australian Industry Group's Performance of Services Index (PSI) fell 0.7 points in October but, at 51.4 points, remains above the 50-point level signifying expansion.

Ai Group chief executive Innes Willox said that while still growing, momentum had eased in the services sector with sales falling and the pace of growth in new orders slipping.

He said businesses could increase the pace of employment growth, noting that while wages and other input costs continued to rise, they were able to absorb the higher imposts rather than passing them on to consumers.

"There is certainly nothing in the Australian PSI for October that points to the sort of pressure on consumer prices that would have the Reserve Bank lifting interest rates next week," Ai Group chief executive Innes Willox said.

The PSI indicates that employment has increased or remained stable every month so far in 2017, which is in line with stronger Australian Bureau of Statistics monthly jobs growth figures.

Five of the PSI's nine sub-sectors - wholesale trade, finance and insurance services, communication services, personal and recreational services, and property and business services - expanded with the last two growing the most.

The sales activity sub-index dropped into negative territory, its first contraction since February.

Ai Group says consumers are being cautious with discretionary spending, directing it towards personal and home-based services rather than local retail goods and hospitality services, such as restaurants.

This trend is reflected in October's record high in the small personal and recreational service sub-sector, which has been expanding or stable since mid-2016.

In contrast, the accommodation, cafes and restaurants sub-sector fell to its lowest level since mid-2013, marking nearly two years of flat or contracting conditions.

Businesses in Western Australia still appear to be facing tougher conditions than those in eastern states, although Ai Group says glimmers of improvement are emerging as the boom-slump cycle turns up again in the west.