Service sector facing tough times leading into Christmas
There’s not much Christmas cheer for the service sector, according to the Bank of New Zealand - Business NZ Performance of Services Index (PSI).
The PSI for November stood at 47.3, down 1.4 points from October and a significant 15.3 points down from November 2007. A PSI reading above 50 indicates that the service sector is generally expanding; below 50 that it is declining. The average PSI value for the year to date is 49.2, alongside last year’s average of 58.1.
Business NZ Chief Executive Phil O’Reilly said the difference in overall values between November 2007 and 2008 highlight the fact that the traditional seasonal pickup is stagnant for many.
“Of particular concern is the sharp drop in new orders – the lowest it has been since the survey began. This will feed through into general business activity over the next few months and, with recent figures showing global service sector activity plunging to much lower levels than here at home, it’s likely the eight consecutive months of contraction will continue through to 2009.
Bank of New Zealand Head of Research Stephen Toplis said times of significant stress often forced corporates to increase margins to improve overall profitability in the face of falling unit sales.
“In our experience corporate New Zealand is, in aggregate, getting well and truly beaten up by a combination of reduced demand and margin pressure. This is why profits are under so much duress.”
Four of the five diffusion indices that make up the PSI exhibited contraction during November. Activity/sales (45.7) fell from October, although employment (49.5) picked up to be close to the level of no change. New orders/business (45.9) slumped to its lowest result to date, which will undoubtedly create further pressure on future activity/sales for many businesses. Stocks/inventories (51.1) experienced another minor drop but still in expansion, while deliveries (46.6) reverted back to a result similar to that recorded in September.
Activity by region was mixed for November, with a combination of both expansion and contraction. The Northern region (44.8) recorded its second worst result, while the Central region (50.4) also experienced a drop in activity, albeit still in expansion for five consecutive months. In the South Island, the Canterbury/Westland region (55.3) continued to build on its October result, while the Otago/Southland region (47.6) recovered from three consecutive sub-40 results to post its highest activity result since March 2008.