Christmas Shows Spring In Step For Service Sector

Christmas Shows Spring In Step For Service Sector

The service sector continued to show solid activity for the last month of 2009, according to the BNZ - Business NZ Performance of Services Index (PSI).

The PSI for December stood at 54.4. Although this was 1.6 points down from November, it was the highest recorded December result since the survey began in 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. For 2009, the average score was 48.8.

Business NZ chief executive Phil O'Reilly said that despite 2009 showing the worst average PSI score for any year, like the PMI the last half has shown a more positive trend.

"The last two months in particular show a better spring in the step for the service sector. Although there are seasonal factors at work which tend to produce stronger results at this time of year, the fact that the two critical sub-indices of activity/sales and new orders/business remain healthy should help fuel overall activity levels into the start of 2010.

"In addition, the number of positive comments from respondents continues to build momentum, with 'cautious optimism' and 'confidence' creeping back into the vocabulary of various businesses. Offshore, the JPMorgan Global Services index at 52.1 for December shows New Zealand in good step with the rest of the world as worldwide orders rise and job losses slow."

Bank of New Zealand senior economist Craig Ebert said that while the figures imply a Q4 volume jump, there are many reasons to remain a little wary on the outlook for consumer spending.

"With positive trade reports for both November and December, there appears to be real momentum under the surface. However, there's a good chance the market could read too much into this as there are other factors at play.

"Thanks to the strong currency exchange against the countries New Zealand imports its retail goods from, consumers have been enjoying reduced prices as retailers compete for trade. Another factor to consider is the housing market. While house prices have been rising since mid 2009, sales have been falling noticeably in seasonally adjusted terms. This gives us reason to remain a little wary, and we'll be keeping a close watch on the various housing reports over the coming months."

For the second consecutive month all sub-indices were in expansion mode. Although all were lower than November, the seasonal factor of holidays meant a corresponding drop in the level of expansion for that month. The two major contributors to the continuing expansion for December came from activity/sales (55.1) and new orders/business (60.0). Employment (51.1) remained almost unchanged from the previous month, as did stocks/inventories (50.3). Deliveries (52.0) fell 2.3 points, but still the second highest result since February 2008.

Activity was again positive for all four main regions during December, with the Central region (60.9) leading the way with its highest result since November 2007. This was followed by the Canterbury/Westland region (56.1), which experienced its highest result since February 2008. The Otago/Southland region (54.4) fell back during the month, while the Northern region (525) did likewise.

Link to the December PSI Link to time series data (on lower right-hand-side of page under 'Surveys').

ENDS

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