Service sector picks up heading into Christmas

Media release
14 December 2009

The service sector is showing solid activity as Christmas approaches, according to the BNZ Capital – Business NZ Performance of Services Index (PSI).

The PSI for November stood at 56.0, 6.1 points up from October, and the highest level of activity since November 2007. In comparison with previous years, the November result was 8.7 points up from November 2008, but 6.6 points down from 2007. A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining. The average PSI value for 2007 was 58.1, while for 2008 it was 49.1. So far for 2009, the average score has been 48.3.

Business NZ chief executive Phil O’Reilly said the pick-up in activity does not come as a complete surprise, given the survey is not yet at the stage of taking out seasonal factors. However, the make-up of the lift is encouraging.

“Whether the data is broken down by sub-index, region or size of business, there is a consistent message of expansion across the board with levels not seen in many categories since late 2007/early 2008. The sub-indices of activity/sales and new orders/business continue to dominate the extent of expansion, as the traditional Christmas rush for orders and sales occurs due to customers wanting tasks completed by the end of the year.

“On the negative side, comments from some respondents continue to focus on key phrases such as ‘recession’, lack of demand’ and ‘smaller margins’. There are still many businesses that will experience another quiet Christmas like 2008 and can only hope that 2009 will bring better fortunes with improving consumer confidence translating into increased sales.”

Bank of New Zealand’s Head of Research, Stephen Toplis, said that “Businesses have every justification to be guardedly optimistic going into calendar 2010. The PSI is consistent with the BNZ’s own view that the economy will expand 2.5% through 2010.”

However, he warns that “such growth is likely to be accompanied by rising interest rates and further upward pressure on the NZD so businesses would be well advised to adopt conservative debt and foreign exchange rate management tactics.”

The current month was the first time since February 2008 that all sub-indices were in expansion mode. The two major contributors to the increase in overall activity came from a 10.3 point lift in activity/sales (58.7) and an 8.5 point lift in new orders/business (61.1). Employment (51.2) continued to edge up higher, while stocks/inventories (50.6) and deliveries (54.3) recorded their highest values since November 2008 and November 2007 respectively.

Activity was positive for all four main regions during November, with the Otago/Southland region (59.4) leading the way with its highest results since February 2008. This was closely followed by the Central region (59.3), which had broken free of a tight band of results during the previous three months. The Canterbury/Westland region (56.0) continued to build on previous results, while the Northern region (54.8) returned to similar expansion levels experienced in September.

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