Small steps for service sector expansion

20 June 2011

Small steps for service sector expansion

The service sector continued to show improvement in expansion during May, although at a slow pace, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for May was 52.8. This was up only 0.2 points from April but 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 gradual improvement in activity for each of the last four months was positive, but there is still a way to go to get consistent expansion across regions and sub-sectors.

"The recovery could best be described as lumpy, with certain regions and sub-sectors struggling to break into expansion mode. In addition, the sub-index for employment shows businesses still tentative about hiring new staff, although a pick-up in new orders/business for May may help feed through into the other indexes over the next few months.

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 May (values of 53.1 and 53.9). Although his level of expansion would not be described as strong, it still represented the highest values since September and June 2010 respectively.

Bank of New Zealand's senior economist, Craig Ebert, noted that regional divergences are becoming important for the economy.

"This can be paraphrased as Auckland continuing to lead the way, rural-based areas rapidly catching up on the back of booming commodity income, Wellington capped by way of the Budget, and Christchurch severely disrupted. Internal and external migration trends will also be well worth watching, amid limited population growth for New Zealand as a whole."

Activity by region showed most areas in expansion during May. The Central region (56.6) returned to robust levels of expansion after a dip in April, while the Northern region (52.1) returned to growth. The Canterbury/Westland region (50.2) bordered on a level of no change for May after a bounce back in April, while the Otago/Southland region (39.3) fell back to similar levels of decline in February and March.
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