Service sector activity lacklustre in March

Activity in the service sector has fallen to the lowest level recorded by the Bank of New Zealand - Business NZ Performance of Services Index (PSI).

The PSI for March stood at 50.8, which was 4.8 points below the February result. A PSI reading above 50.0 indicates the service sector is generally expanding; below 50.0 that it is declining. The average score since the survey began in April 2007 is 56.8.

Business NZ chief executive Phil O’Reilly said although the March result was still in positive territory, the sharp fall from February to reach the lowest value since the PSI began, on the back of a low January result, makes for a fairly lacklustre first quarter for the service sector.

“Comments from respondents continue to focus on negative sentiments, with many comments centred on customers/clients and other businesses spending less. Other comments relate to rising costs and current interest rate levels,” he said.

Bank of New Zealand senior markets economist Craig Ebert said it was a surprise to see core retailing as one of the more resilient components of the March PSI.

“That’s at odds with a sector that has not only gone flat already, according to Statistics NZ data, but is an area most vulnerable to the continued household-centered GDP deceleration we forecast.”

Three of the five diffusion indices that make up the PSI exhibited some level of expansion, although new orders/business (52.9) fell sharply from February and exhibited its lowest result. Activity/sales (51.8) also fell back from February, closer to the level experienced in January. Employment (48.9) declined for the first time, while stocks/inventories (49.0) also contracted for the second time in three months.

Activity by region was split between expansion and contraction. The Central (57.1) and Otago/Southland (52.9) regions both showed positive activity for March, albeit with the latter having lower levels of growth than February. The Canterbury/Westland region (47.7) experienced its second and lowest level of contraction, while the Northern region (49.7) displayed a fall and its first sub-50 result.

The various service sectors displayed a mix of expansion and decline. The retail trade (54.2) again took the top spot for activity, followed by health & community services (53.0). In contrast, the lowest result was again accommodation, cafes & restaurants (42.9), which has fallen significantly since the start of the year. The remaining sectors recorded results that were close to the 50 point mark.

Link to the March PSI.

Link to time series data