Weak demand continues in service sector

Media release
16 March 2009

Weak demand continues in service sector

Despite an improvement in activity levels for February, the service sector remains in contraction, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for February was 46.3, an increase of 3.6 points from January, but still well below the critical 50 mark (a PSI reading above 50 indicates that the service sector is generally expanding; below 50 that it is declining).

BNZ Capital Senior Economist Craig Ebert said the contraction was most pronounced in retail and hospitality – areas that depend on discretionary spending and are sensitive to the state of tourism.

“This suggests the service-based retail sector will remain under pressure for the near term,” Mr Ebert said.

The average PSI value for 2007 was 58.1, while for 2008 it was 49.1.

For the first time, all four main regions surveyed experienced a drop in activity.

All five diffusion indices that make up the PSI contracted below the 50 mark during February, although with some level of expansion from January. Activity/sales (42.9) rose above the 40 point mark, while employment (44.9) rose 1.4 points. New orders/business (49.8) returned to the same value as December, while stocks/inventories (48.3) showed a similar uplift. Deliveries (47.2) rose 3 points, although still showing contraction. In comparison with February 2008, almost all sub-indices were considerably lower.

For the first time, activity by region was negative throughout the whole country, as the Central region (46.9) experienced a sub-50 result for only the second time. In contrast, the Northern region (45.3) improved from its sub-40 result in January to return to activity levels seen in December. In the South Island, the Canterbury/Westland region (48.9) was relatively unchanged from January, while the Otago/Southland region (48.0) improved from a significant drop in activity in January.

Meanwhile, PSI surveys in other countries also show activity and new orders as sluggish.

Link to the February PSI
Link to time series data

ENDS

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