Growth in service sector activity stalls in April

Activity in the service sector has stalled for the first time in a year, according to the Bank of New Zealand - Business NZ Performance of Services Index (PSI).

The PSI for April stood at 48.9, which was 1.9 points down from the previous month, and 9.4 points lower than the same time last year when the survey was launched. The average score for the year is 56.2. A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining.

Business NZ chief executive Phil O’Reilly said the April result was significant in two respects:

“This was the first sub-50 result recorded for the survey and was not expected, given economic data and trends over recent months. And now the survey has been running for 13 months, April results can be directly compared to last year, revealing a significant drop off of close to 10 points. This shows a clear change in economic conditions compared with 2007, as the day-to-day business activities for many have been hit by falling confidence and increasing costs,” he said.

The Bank of New Zealand’s senior markets economist, Craig Ebert, said having held up remarkably well into the end of 2007, the April result showed the service sector has since started to struggle.

“A good part of this, of course, reflects the sector’s very direct exposure to the crunch working its way through the household sector. As we saw in last week’s retail trade figures, consumer spending is now stalling– indeed is probably falling – the way house prices have been doing for many months now. So it was little surprise to see the retail sub-index of the PSI down at 48.5, compared to the relatively robust level of 52.7 in April 2007.”

Four of the five diffusion indices that make up the PSI exhibited some level of decline, with activity/sales (48.3) showing its first contraction. Employment (44.7) followed on from its decrease in March, while stocks/inventories (46.9) and supplier deliveries (47.8) also recorded some level of contraction. In contrast, new orders/business (55.3) picked up from March, but at that level still represents its second worst result.

Activity by region showed contraction in most areas. The two South Island regions both showed declines, with the Otago/Southland region (42.8) close to its poor result recorded in January. The Canterbury/Westland region (48.1) experienced its second straight decline, while the Northern region (49.8) remained close to no change for the month. Only the Central region (53.8) remained in positive territory.

The various service sectors were largely in contraction mode during April. The worst result was again accommodation, cafes & restaurants (39.2), which continues to slide in activity since the start of the year. In contrast, both the health & community (55.6) and property & business services (54.5) sectors showed upwards movement from March.

Link to the April PSI

Link to timeseries data