Service sector growth moderates in January

Service sector growth moderates in January

The service sector continued to show a recovery for the first month of 2010, despite the rate of expansion slowing, according to the BNZ - Business NZ Performance of Services Index (PSI).

The PSI for January stood at 53.1. Although this was 1.3 points down from December, it was the highest recorded January 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 seasonal factors over this time are often a double edged sword for the service sector as a whole.

“Comments from respondents show a split in the numbers labelling Xmas holidays as being either a positive or negative outcome for their business. Negative comments were also concentrated on issues such as ‘cash flow’ and ‘lack of demand/orders’.

“However, two pleasing aspects of the January result was that for the second consecutive month, a record monthly high was reached, while employment continues to tentatively head upwards with four consecutive months of expansion. With the key indices of activity/sales and new orders remaining in positive territory, it is hoped that expansion will be sustained in the months ahead.

BNZ senior economist Craig Ebert said January’s PSI figures, while showing growth, fell disappointingly short of soaring consumer confidence.

“Discounting obviously helped boost sales volumes and cull inventories, but there’s still some catching up to do to reach the optimistic expectation levels shown in market polls.

“The telling sign now will be the housing market. Its next steps could be crucial for the economy, and even monetary policy. It will in turn be important for the retail sector and therefore the wheels of recovery which are only just beginning to turn. Watch this space.”

For the third consecutive month all sub-indices were in expansion mode. New orders (56.1) continued to lead the way, although expansion dropped below 60.0 for the first time since October. Activity/sales (53.1) also edged downwards, while supplier deliveries (50.3) fell 1.7 points. Stocks/inventories (50.3) remained unchanged from December, while employment (52.7) reached its highest level since November 2007, as well as being in expansion for its fourth consecutive month.

Activity was again positive for all four main regions during December, with the Otago/Southland region (59.0) returning to expansion levels experienced in November. The Central region 54.3) fell back from two consecutive months of strong expansion, while the Canterbury/Westland region (51.7) dropped 4.4 points. The Northern region (52.4) remained largely unchanged from December, decreasing 0.1 point.

Link to the January PSI
Link to Time Series Data

ENDS

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