Forget mining, it's services which are holding the Australian economy back

Like most developed countries, Australian economic activity is dominated by services. And while manufacturing and mining get all the airplay, it’s services where a huge chunk of the population work and the vast percentage of economic activity occurs.

So when services turn and start expanding and stay expanding we’ll know that the Australian economy is getting back up on the plane.

The bad news is that services are yet to move back into the expansion zone in any sort of sustainable manner. That’s the message in the latest release of the AiGroup Performance of Services Index, which showed a stable print of 49.6 in May.

As the chart above shows, since the RBA targeted consumers and consumption back in 2007 and 2008 with higher rates to “make way” for the mining boom, services, along with domestic final demand, has struggled. That’s the real cost of the mining boom.

The RBA hit consumers and services and they are still struggling to make it back.

The good news is that employment in services is surging, which might be a sign that things are about to change.

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