Services sector contracts in November, US economy tipped to improve: Economy Roundup

The services sector continued to contract in November as companies said higher interest rates impacted sales and confidence, according to the latest Australian Industry Group-Commonwealth Bank performance of services index.

The index fell by 4.5 points to 46.2 in November, below the 50-point barrier separating expansion from contraction. It is now the ninth time in 2010 the index has been below the 50-point level.

AIG chief executive Heather Ridout said lower consumer confidence and spending figures are to blame.

“The tourism-related sub-sectors of accommodation, cafes & restaurants and personal & recreational services are also battling the headwinds of the strong Australian dollar,” she added.

The survey found that the measure of new orders fell by 7.1 points to 45, while the employment index also fell by 1.8 points to 47.6.

Qantas Airways has alleged that Rolls-Royce was in breach of duty when it supplied the engines for its fleet of A380 aircraft, due to a design defect, AAP is reporting.

Meanwhile, Australian Transport Safety Bureau chief commissioner Martin Dolan told reporters in Canberra today the incident was due to “an uncontained engine failure”.

“The initial assessment was that the most likely cause of the engine failure was problems with the release of oil into a particular part of the engine, leading to an oil fire and consequences finally in the liberation of the disc elements,” he said.

“That was initially responded to by ensuring there were regular inspections for oil leakages in the … engine in the Airbus 380.

Meanwhile, Rio Tinto chief executive Tom Albanese has told Business Spectator that iron ore prices will continue to drop after the next few years of growth.

“We’re not saying that they’re going to go away quickly, but I think most forecasters would assume that these strong iron ore prices are not permanent,” Albanese said. “Will that continue forever in the future? Probably not, but we probably have a few more years.”

He also said the Government needs to stick to its plan regarding the mineral resources rent tax.

“I think it would be incredibly shocking for us to see the government go back on what they agreed with us back in July,” he said.

Shares open higher from Wall Street lead

The Australian sharemarket has opened higher this morning, following a solid night on Wall Street where stocks gained ground after Goldman Sachs upgraded forecasts for American GDP during 2011-2012.

The benchmark S&P/ASX200 index was up 15 points or 0.33% to 4691.6 at 12.20 AEST, while the Australian dollar rose nearly one cent higher to US97c.

ANZ share shares lost 0.1% to $23.40 as Commonwealth Bank shares gained 0.9% to $49.72. Westpac rose 0.6% to $22.09 as NAB rose 0.7% to $24.07.

Meanwhile, The Australian is reporting that the Australian Competition and Consumer Commission has told the Federal Government to ignore a key part of the National Broadband Network business case.

This comes after a separate report in the Australian Financial Review also reported that the Government has been told to reject a 14 POI plan proposed by the NBN Co.

Overseas, Standard & Poor’s has warned that it may cut Greece’s BB credit rating if it finds that the European Stability Mechanism will favour public creditors.

“We believe that assigning ‘preferred creditor’ status to future official lending via the ESM could be detrimental to the ability of non-official holders of sovereign debt to be repaid,” S&P said in a statement.

Economic sentiment improves in the US

Signs that the US economy is beginning to recover have emerged, with new figures from the Labor Department showing that initial claims for state unemployment aid increased to a seasonally adjusted average of 436,000 – but the four-week moving average has now reached its lowest point in over two years.

“There seems to be no doubt that the economy is improving and likely to continue to improve,” Wells Fargo Securities senior economist Mark Vitner told Reuters.

The data also came as Goldman Sachs released new figures regarding GDP forecasts, while investors became less worried over debt problems in Europe as the continent’s central bank purchased more Portuguese and Irish debt.

The Dow Jones industrial average gained 106.63 points, or 0.95%, to 11,362.41.

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