Service sector has tough start to 2009

Last month was the worst ever surveyed in the service sector.

The BNZ Capital-Business NZ PSI (Performance of Services Index) for January was 42.7, down 5.3 points from December and down 9.2 points from January 2008.

The PSI measures sales, new orders and other activity in the services sector in New Zealand. A PSI reading above 50.0 indicates that the sector is generally expanding; below 50.0 that it is declining.

The average PSI value for 2008 was 49.1 and for 2007 was 58.1.

Business NZ chief executive Phil O’Reilly said the first month of 2009 had unsurprisingly shown another fall in activity, but the level of the drop was severe.

“Contraction over the last nine months has been moderate rather than significant, but January’s decline, even taking into account seasonal factors, now puts us on a level with other countries, including the US, where the JPMorgan Global Services Index currently stands at 43.0.

Bank of New Zealand Senior Markets Economist Craig Ebert said the rapidly softening labour market was a concern and employment and capital expenditure would be the big things to watch.

“The international economy is now expected to outright contract this year and no-one is immune from it,” Mr Ebert said.

All five diffusion indices that make up the PSI contracted during January, with three showing their lowest ever result. Activity/sales (37.3) fell significantly from December, while employment (43.5) recorded its second lowest value. New orders/business (45.2) returned to a similar level recorded in November, and for the fourth time in five months has scored less than 50. Stocks/inventories (45.7) fell for the fifth consecutive month, while deliveries (44.2) again recorded contraction after an improvement in December.

Activity by region was generally negative, with the only exception being the Central region (53.9). The Northern region (39.3) continued to display lower activity levels with its first sub-40 result. In the South Island, the Canterbury/Westland region (48.3) went into contraction for the first time since August 2008. After an encouraging result for December, the Otago/Southland region (40.4) returned to the low levels of the latter half of 2008.