Devil in the detail for service sector expansion

Devil in the detail for service sector expansion

The service sector improved its level of expansion for April, although the devil is in the detail, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for April was 52.6. This was up 1.5 points from March, and the highest result since September 2010. 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 2009 was 48.8, while for 2010 it was 53.2.

BusinessNZ chief executive Phil O'Reilly said that the improvement in activity was obviously a useful step forward towards recovery, but it was also important to understand the subtleties of the results.

"Both the Canterbury/Westland and Otago/Southland regions improved from their severe level of contraction in March, with the former actually leading the way in terms of regional expansion for April. However, analysing comments made by respondents in Canterbury, along with strong values for both sales and new business, shows that the spike was mainly due to a drop in supply of certain sub-sectors, as well as the movement of various businesses into other areas. Also, while the Otago/Southland region has improved in terms of activity, it still remains in
contraction.

The BNZ - BusinessNZ Performance of Composite Index (PCI), which combines the results of both the PSI and PMI, shows that both options for measurement improved in April (both standing at 52.5). In contrast, the JPMorgan Global Combined Index slowed sharply to stand at 51.8.

BNZ Senior Economist, Craig Ebert, commented on the positive signals from New Zealand's in-bound tourism sector.

"While in-bound tourism has been struggling since 2003/04, and has been especially hard hit by the Christchurch and Japan disasters, signs of stability, even rebound, have emerged in April.

"The next test for in-bound tourism will be the winter (ski) season, followed by the Rugby World Cup in the Spring. However, the big test for the industry will be the path of the global economy over the coming years."

All five sub-indices were in expansion during April, which last occurred in September 2010. New orders/business (53.8) led the way, followed by employment (53.0). Stocks/inventories (52.7) recorded its highest value since August 2008.

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