Mixed news for Australian economy

SYDNEY - Australia's services sector continued to grow in the final month of 2005, but consumer caution and a softer housing market weighed on activity, an index shows.

The Australian Industry Group-Commonwealth Bank performance of services index (PSI) fell by 4.9 points to a seasonally adjusted 51.6 in December.

A reading above 50 points indicates that services activity is generally expanding, while a reading below 50 indicates that it is declining.

Sales, new orders, employment and supplier deliveries continued to grow in the month, with the continued build-up in stocks highlighting a more moderate pace of growth.

But input cost increases eased significantly, suggesting a respite on cost pressures in the lead-up to Christmas.

Commonwealth Bank chief economist Michael Blythe said the volatility in services sector activity continued.

"Consumer caution persists and a weakish housing sector remains a drag on overall services sector activity," he said.

"Drawing a line through the past few months suggests that the services sector will enter 2006 with a modest amount of momentum behind it."

Ai Group chief executive Heather Ridout said the services sector clearly ended the year on a soft note.

"Consumers are worrying about interest rate risks, their high credit card bills and the fact that their houses haven't risen in value as much as last year," she said.

"While none of these concerns seem likely to be relieved early, the growth seen in sales, new orders, employment and supplier deliveries, albeit at a weaker pace, should build more confidence going in to the new year."

The strongest growth for the month was recorded in the consumer-related sectors of accommodation, restaurants and cafes, and personal and recreational services.

Despite a seasonal lift in retail trade, the increase was modest relative to previous Decembers, while growth in wholesale trade slowed.

After expanding the previous month, the business-related sectors of finance and insurance and property and business recorded small declines in December, reflecting in part a soft housing market.

- AAP