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Australia’s Service Industry Contracted in January on Rates

Australia’s services industry contracted in January for a third straight month as higher borrowing costs weighed on household spending and floods inundated the nation’s northeast, a survey showed.

The performance of services index declined to 45.5, its lowest level since July 2009, from 46.4 in December, Commonwealth Bank of Australia and the Australian Industry Group said in Sydney today. A figure below 50 indicates contraction.

The Reserve Bank of Australia, which has increased its overnight cash rate target seven times since October 2009, held the benchmark at 4.75 percent this week after a quarter-percentage-point increase in November. Higher borrowing costs contributed to a 14 percent gain in the local dollar last year, the second-best performance among the 16 major currencies.

“The services sector had a sluggish start to the year with interest-rate sensitive households and businesses lacking confidence and remaining hesitant to spend,” Australian Industry Group Chief Executive Officer Heather Ridout said in a statement. “As well, the full impact of the flooding is yet to unfold.”

The index’s gauge for sales fell to 45.4 from 46.9, and the reading for new orders plunged to 39.7 from 45.3. The wages indicator slid to 56.3 from 62.8, the report showed.

“The very sharp fall in the new orders sub-index is of real concern,” Ridout said. “The poor outlook for new orders points to the possibility of the weakness in the sector that was evident for much of last year continuing over coming months.”

Today’s report, based on a poll of about 200 companies, is similar to the U.S. non-manufacturing ISM index.

The report measures sales, new orders, deliveries, inventories and employment for companies such as banks, real-estate agents, insurers, restaurants, transport firms and retailers to compile the overall performance of services index.

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