Service sector activity continued to expand but at a slower pace in October, due to more moderate growth in sales, said a monthly report from the Australian Industry Group.

Three states show growth progress in October are New South Wales, Victoria and Tasmania. Service activity fell in South Australia, Western Australia and Queensland.

Despite the August RBA rate rise, market chatter about another imminent rate rise and higher petrol prices, the services sector remains in expansionary mode, said Commonwealth Bank Senior Economist, John Peters.

The continuing expansion in the services sector was consistent with other economic growth indicators, including the latest national account data which showed the non-farm economy growing at over 5 percent per annum in middle 2007, noted Peters.

The industry group said interest rate uncertainty and the high Australian dollar could provide major headwinds with potential dollar threats on tourism activity indeed drag growth in Queensland.

The continued buoyancy in services sector activity is also due in no small way, to the fact that labour market conditions are the best in over three decades with unemployment tracking at 4.2 percent in September. Mr Peters said.

Against this jobs background, consumers have weathered the headwinds of rising interest rates and petrol prices and have continued to spend, Mr Peter concluded.