The services sector is moving closer toward expansion, thanks to low interest rates and the falling Australian dollar.
The Australian Industry Group Australian Performance of Services Index (PSI) jumped 3.2 points to 49.3 in January, but still remained below the 50 level that separates expansion from contraction.
Health and community services, along with finance and insurance, strengthened last month but accommodation, cafe and restaurant services remained depressed.
The services sector represents around 70 per cent of the national economy, Ai Group says.
"In four of the past five months the services sector, as measured by the Australian PSI, has moved closer to a long-awaited expansion," Ai Group chief executive Innes Willox said.
"While there is some volatility, the sector seems to be building slowly towards expansion with the help of lower interest rates and, for services businesses exposed to international trade, by the lower dollar."
But while there were positive signs, recovery was still fragile, Mr Willox said.
"The sector has been in negative territory for two years now and it will take some time before the ground lost over this period is recovered," he said.
"In the meantime, pressure continues on margins with a growing gap between selling prices and cost increases.
"Against this fragile background, policy makers will need to be wary of dampening demand with rapid fiscal consolidation."
