New business improves, but sector still contracting
The service sector continues to show contraction, but new business levels may provide better results in the months ahead, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).
The PSI for June stood at 45.0, which was 1.2 points down from May. In comparison with previous years, the June result was 0.6 points down from June 2008, and 12.8 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 half of 2009, the average score has been 45.2, almost identical to the latest result.
Business NZ chief executive Phil O’Reilly said that the required boost in new business/orders for an overall improvement in the service sector showed some encouraging signs for June. However, activity remains stuck in a relatively short band of contraction.
“Comparisons with offshore results tell us both good and bad news. The good news has been we didn’t seem to hit the depths of activity that many countries did. The bad news is that the global service scene is showing a clear pathway to recovery, with the global activity now at 47.4. New Zealand has to start showing a similar path if there’s going to be any confidence around the possibility that the second half of 2009 is going to be much better than the first.”
BNZ Capital Senior Economist Craig Ebert said that June’s performance of services showed the first positive index for forward orders in a long while – a good omen for forward production. “However, it’s a mixture of good and bad news.
“On the positive side, while finance, insurance services, real estate, business services and the public sector have all expanded; there are also sectors that have gone backwards. There is still a long way to go to pull it out of the sub-50 territory it’s been in since April last year.”
Four of the five diffusion indices that make up the PSI exhibited contraction during June, but exhibited a mixture of results compared with May. Activity/sales (43.9) remained exactly the same as May, while employment (43.6) dipped after an improvement in the previous month. New orders/business (50.8) went into positive territory for the first time since March, and for only the third time in ten months. Stocks/inventories (41.0) dropped to its lowest level since the survey began, while deliveries (42.2) did likewise, undershooting the previous low of 42.7 experienced in June 2008.
Activity continued to remain negative in all four main regions in June, however the South Island showed some recovery. The Canterbury/Westland region (47.5) recorded its highest value since March, while the Otago/Southland region (44.8) recovered back to levels experienced in April. The Northern region (44.4) dipped after a sizeable improvement in May, while the Central region (45.8) recorded its lowest level of activity since the survey began.