Slow slog for service sector heading into Christmas

Media release
20 November 2010

Slow slog for service sector heading into Christmas

Activity in the service sector is exhibiting little Christmas cheer, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for November was 51.4. This was up only 0.2 points from October, and the second lowest November result since the survey began. 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 53.2.

BusinessNZ chief executive Phil O’Reilly said that while the first half of 2010 had shown a healthy level of expansion, the second half has been less encouraging, with activity clinging on to expansion.

“Since July onwards, results have generally underlined the cautious approach consumers are taking at present with their spending habits. In terms of actual comments received from respondents, positive comments have highlighted certain businesses enjoying seasonal effects at this time of year, while good weather conditions have generally provided a boost to sales. At the other end, a general lack of orders, demand and work have caused ongoing concerns for others, as many head into their traditionally busiest time of the year.”

BNZ economist Doug Steel said that while a dead-flat result overall is not the best news to head into the Christmas break with, the good news is that the economy still appears to be in recovery mode, on trend.

“In our view, a flat result should be read as a pause in the broader recover process. The detail in the results indicates that economic growth will pick up into 2011. It’s pleasing to see new orders leading the charge, and transport activity is at its highest three month average since the survey began in mid-2007. Given transport’s role in many economic transactions, this gives cause for confidence.”

Despite the small pick up in expansion, only two of the five sub-indices were in expansion mode during November. Supplier deliveries (47.5) experienced the lowest result, followed by employment (48.8). Stocks/inventories (49.9) remained largely unchanged from the previous month, although now technically in contraction. Encouragingly, new orders/business (54.4) improved from its October result to lead the way in November, although activity/sales (50.5) dropped 2.5 points, albeit still in expansion.

Unadjusted activity by region exhibited the same pattern as the previous month, with the North Island showing expansion and the South Island showing decline. In fact, the difference between the two islands became more pronounced in November. The Northern region (55.9) again led the way, closely followed by the Central region (55.3). The South Island experienced another consistent level of decline, with the Canterbury/Westland (44.6) and Otago/Southland (44.7) regions falling back into contraction for seven of the last eight months.

ENDS

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