Service sector expansion softens but employment up

Service sector expansion softens, but employment picks up

The service sector experienced its sixth consecutive month of expansion, although activity softened slightly in April, according to the BNZ - Business NZ Performance of Services Index (PSI).

The seasonally adjusted PSI for April stood at 54.1. This was 2.6 points down from March, but up 7.2 points from April 2009. 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 2008 was 49.1, while for 2009 it was 48.8. So far, the average score for 2010 is 54.8.

Business NZ chief executive Phil O’Reilly said that although the dip in expansion has somewhat taken the gloss off the current result, the fact that the sector has now been expanding for six consecutive months provides a stable platform for continued gains in activity, especially employment.

“The most pleasing aspect of the April result would have to be employment expansion reaching levels not seen since mid-2007, along with being the second highest result since the survey began. With its sister survey the Performance of Manufacturing Index also showing a pick up in employment, along with Statistics New Zealand’s official unemployment rate dropping for the March quarter, there is a clear indication that many businesses are now in a position to again look at hiring additional staff as orders and activity pick up.

BNZ head of research Stephen Toplis said that while the New Zealand economy is now 15 months into its recovery phase, there’s still wide variations between different sectors and businesses.

“While retail remains subdued and households remain conservative, wholesale trade and export activity – particularly dairy, logging and tourism – are doing well and contributing to economic growth. The expansion so far has only just filled the hole created by the downturn, but with the sixth consecutive month of expansion in the service sector, we remain cautiously optimistic.”

All five sub-indices were in expansion mode for the second consecutive month, with activities/sales (53.3) experiencing lower levels of expansion compared with March. New orders/business (57.1) also fell, although still at healthy levels. Employment (54.3) continued on its road to recovery with its highest result since June 2007. Supplier deliveries (50.2) again experienced little change compared with previous months, while stocks/inventories (52.2) increased to its highest level since November 2007.

Unadjusted activity was positive in two of the four main regions during April, with the Central region (56.4) again leading the way, albeit lower than in March. The Northern region (50.8) displayed slight expansion, but fell 6.9 points from the previous month. Both South Island regions went from expansion to contraction in April, with the Canterbury/Westland (47.4) and Otago/Southland (48.6) regions experiencing a broadly similar result.

Link to the April 2010 PSI
Link to time series data

ENDS

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