Spring boost for service sector activity

The first month of Spring brought about continued upwards expansion in the service sector, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PSI).

The PSI for September stood at 53.2, which was 1.9 points up from August. In comparison with previous years, the September result was 6.3 points up from September 2008, but 5.8 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. So far for 2009, the average score has been 47.3.

Business NZ chief executive Phil O’Reilly said that the ongoing momentum in overall activity will most likely continue as positive comments from respondents tended to focus on Christmas approaching, the weather improving and people feeling more confident about spending. Certainly, the more forward-looking new business/activity component of the PSI continuing to edge up should filter through to activity/sales during the last quarter of the year.

“New Zealand remains on track with offshore developments in the service sector, as evidenced with results from the JPMorgan Global PSI at 52.2 for September. Also, we continue to remain above Australia (49.9), which also shows improvement but at a slower pace.”

BNZ Capital head of research Stephen Topliss predicts the economy will be expanding at an above-trend pace by the end of next year, as domestic and international growth continues to push higher. However, there are still some uncertainties as to the sustainability of the expansion.

“All of the economy’s key leading indicators are pointing to a much stronger year ahead, with a 2.3% GDP expansion forecast for 2010, whereas it contracted 1.6% over calendar 2009. But the immediate expansion may be held back by the pace of the currency’s appreciation, along with other imbalances that remain, including the poor household savings ratio and mounting international debt.”

Like August, only two of the five diffusion indices that make up the PSI exhibited expansion, but involved the two key indicators of activity/sales (58.0) and new orders/business (58.6) that increased 7.5 points and 1.0 point respectively. The former was the highest result since November 2007. Employment (48.0) slipped back slightly from the August result, and remains in contraction now for 19 months. Stocks/inventories (46.9) also slipped back from the previous month, while deliveries (49.3) continued to show upwards movement to reach its highest result since March 2009 (albeit still in decline).

Activity was positive for three of the four main regions during September, with the Northern region (55.8) recording its highest result since November 2007, as well as the strongest regional result for the current month. The Central region (50.4) fell back slightly from August, although still exhibited slight expansion. The Canterbury/Westland region (51.5) also experienced a dip in expansion after consecutive values above 53.0, while the Otago/Southland region (45.6) dropped back to levels experienced in June/July after a brief recovery in August.