RTTNews - Australia's services sector activity improved in August, but remained in contraction, the latest report from the Australian Industry Group and Commonwealth Bank said Thursday.

The seasonally adjusted Performance of Services Index rose 3.9 points to 48, 14.4 points above the low seen in February, but remained below the threshold level of 50 separating expansion from contraction.

In August, sales and new orders dropped at a slower pace, and capacity utilization rose from a series low in July. Employment rose to its highest levels in 14 months, but fell just short of the 50 level mark. Suppliers deliveries also showed the highest reading since May 2008. Moreover, growth in input costs eased, and selling prices remained broadly steady in the month.

The Commonwealth Bank's Senior Economist John Peters said, This trend improvement in the Australian PSI in recent months lines up with a cluster of recent economic data signaling the continuing resilience in the Australian economy, in stark contrast to the deep recessions prevailing in the advanced G7 economies and fellow G20 economies.

Companies surveyed cited benefits from improvements in consumer and business confidence, business investment, and housing sector conditions, illustrating the continuing role of monetary and fiscal stimulus in supporting the economy, the AiG's Heather Ridout said.

At the same time, Ridout noted that while the improvement in the services activity was welcome, it was not clear whether the expansion in activity would survive the winding down of the stimulus and a rise in interest rates. The answer to the question as to whether the rebound in activity is self sustaining is uncertain and therefore authorities should proceed with great caution, she added.

During the month, the sales index climbed to 49.1 from 47.5, while the new orders index edged up to 47.1 from 45.7. Capacity utilization improved to 73.5% from 70.8%.

Moreover, the employment index increased to 48.6 from 45.4, even as the wages index dropped to 53.6 from 55.6. Supplier deliveries climbed to 47 from 38.4, inventories were up to 47.9 from 36.8. At the same time, the input price index dropped to 63.9 from 65.6, while the selling price index fell to 50.4 from 53.

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