Service sector still weak

Media release
20 April 2009

Service sector still weak

There were positives and negatives in the service sector in March, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for March was 47.1. This was 0.8 points up from February and was the second consecutive monthly improvement in overall activity, but still 3.7 points down from March 2008.

The average PSI value for 2007 was 58.1, while for 2008 it was 49.1. A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining.

Business NZ Chief Executive Phil O’Reilly said the sector had now been in contraction for 12 consecutive months, although there were a couple of positives to glean from the March results

“Two of the main sub-indexes – sales and new orders - recorded reasonably good values compared with those in the last few months. As well, the proportion of negative comments received from respondents has continued to drop. But employment activity remains historically weak. Obviously, any future upturn in hiring intentions will rely on continued improvements in new orders and sales in the months ahead,” Mr O’Reilly said.

Bank of New Zealand Senior Economist Craig Ebert said the improved figures for sales and new orders did not mean a turnaround in the sector.

“The wider evidence is of widespread softening in the business sector, including services. And while there is a lot of fiscal stimulus in the pipeline, there seems little if any room for more,” Mr Ebert said.

Three of the five diffusion indices that make up the PSI contracted during March, although most showed some improvement from February. Activity/sales (47.8) lifted to its highest value since July 2008, while employment (44.8) remained weak. New orders/business (51.4) produced its highest result since July 2008, while deliveries (51.4) returned to its December 2008 level. Stocks/inventories (45.4) fell 2.9 points, with a result similar to the start of 2009. In comparison with March 2008, almost sub-indices were lower, with the exception of deliveries.

Activity was negative in three of the four main regions monitored, with results mixed compared with February. The Northern region (47.0) recorded its highest result since October 2008, while the Central region (49.6) was close to the no-change mark of 50.0. The Canterbury/Westland region (50.2) produced a result over the no-change mark after two consecutive months of contraction, while the Otago/Southland region (40.7) reverted back to a similar significant level of contraction as in January.

Link to the March PSI
Link to time series data

ENDS

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