Service sector still in the shadows

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The service sector remains in the shadows, but activity doesn’t appear to be getting any darker, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for May stood at 46.2, which was 2.5 points up from April, and almost identical to the February 2009 result. In comparison with previous years, the May result was 2.9 points down from May 2008, and 12.3 points down from 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 the first five months of 2009, the average score has been 45.2.

Business NZ chief executive Phil O’Reilly said that the May result reinforced views that the level of carnage seen in the services sector abroad hasn’t been as bad in New Zealand.

“14 months of consecutive declines is certainly nothing to write home about, especially when compared with results for the first year the survey was running. However, we haven’t experienced a sub-40 result for overall activity, while other countries such as Australia and until recently the broader Eurozone region have seen activity drop to that level. Encouragingly, new orders/business has, for the best part, shown continued resilience in the face of some tough times, but will really need to start showing expansion to help boost activity for the second half of 2009.”

BNZ Capital Senior Economist Craig Ebert says it’s a blessing New Zealand is not involved in the car manufacturing industry, unlike countries like the USA and Japan which are suffering the most. “However, there’s no denying that the recent slump in domestic car sales has hit our economy hard, by way of lessening throughput for the wholesale distribution sector.

“Despite this, there are reasons to believe the worst may soon be behind us. Perhaps the clearest indicator being the extent to which car expenditure has corrected to date – especially on a per capita basis.”

All diffusion indices that make up the PSI exhibited contraction during May, but most showed improvement from April. Activity/sales (43.9) recovered somewhat from a significant drop in April, while employment (46.3) recorded its highest value since December 2008. New orders/business (49.7) came close to a level of no change for May, while stocks/inventories (44.7) increased 2.1 points from the April. Lastly, deliveries (44.7) remained relatively unchanged from the previous month. In comparison with May 2007 and 2008, all sub-indices were lower.

Activity was again negative in all four main regions for May, however half showed a pick-up from April. The Northern region (47.4) recorded its highest value since October 2008, while the Central region (47.2) continued to slip further. The Canterbury/Westland region (43.7) recorded its second lowest ever result (although up from April), while the Otago/Southland region (37.0) dipped under the 40-mark for the first time since October 2008.


Link to the May PSI
Link to time series data

For media comment: Craig Ebert 04 474 6799

Full results are available on www.businessnz.org.nz under ‘PSI Reports’. For more information or assistance with data interpretation contact Stephen Summers: 04 4966564, ssummers@businessnz.org.nz. The BNZ Capital - Business NZ PSI draws on the depth of member companies associated with Business NZ: Employers and Manufacturers Association (Northern), Employers and Manufacturers Association (Central), Canterbury Employers’ Chamber of Commerce, Otago Southland Employers Association, Hospitality Association of New Zealand, New Zealand Retailers Association and the Tourism Industry Association New Zealand. The survey is sponsored by BNZ Capital.