The Australian services sector continues to grow overall except for the retail sub-sector, which is still feeling the impact of high household debt and intense online competition.
The Australian Industry Group’s Performance of Services Index (PSI) fell 0.9 points to 54 points in February, but remains above the 50-point level which signifies expansion.
The overall index has recorded 12 consecutive months of growth, although growth in February was slower than in January.
The retail sector contracted for the 11th consecutive month to hit its lowest point in almost six years.
Ai Group chief executive Innes Willox said sales and employment grew in most sectors, especially in finance and insurance, and personal and recreation services.
Property and business services also contributed strongly.
“In stark contrast, and pointing to the extent of its structural challenges, the pace of contraction in the retail services sub-sector plunged to a level not seen since mid-2012,” Mr Willox said.
The Ai Group report said retail remains an anomaly in an improving economy.
Weak consumption growth from highly indebted households is stopping businesses from increasing prices.
Also, intense competition , especially from online platforms, continues to put pressure on the sector.
Mr Willox said that across the whole services sector, input costs are rising, but competitive pressures are inhibiting the ability of service companies to pass on costs to customers.
The input prices sub-index jumped to its highest level since April 2015, with participants still reporting problems absorbing higher energy costs.
Nonetheless, Mr Willox said, further growth in new orders points to expansion of the overall services sector continuing in the months ahead.