Service sector conditions pick up in February

The service sector continued along its path of solid, if unspectacular expansion for the second month of 2010 according to the BNZ - Business NZ Performance of Services Index (PSI).

The PSI for February stood at 53.7. This was 0.6 points up from January, and up 7.4 points from February 2009. 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 2009, the average score was 48.8.

Business NZ chief executive Phil O’Reilly said that both the main result and the indices that make up the PSI continued to show growth in the right areas, with new orders/business levels remaining strong and activity/sales lifting upwards.

“Comments from respondents continue to show distinct patterns, depending on whether they are positive or negative. Negative comments remain short and concise with ‘cash flow’ and ‘lack of demand’ dominating. On the positive side, comments are specific, with many outlining new customers, stronger growth or taking opportunities that present themselves. For many, the increase in activity/sales has been somewhat of a pleasant surprise, although most are conscious of any growth coming off a low base.”

Bank of New Zealand economist Doug Steel said the continuing recovery of the service sector is encouraging for the wider economy, but not yet fast enough for strong jobs growth.

“Seeing new orders continuing to lead the way is encouraging for the durability of the service sector expansion. The fact that this sector makes up around two thirds of the economy as a whole, is good news for the bigger picture of New Zealand’s recovery.

“However, there’s been a lack of acceleration in this expansion, and only mild net job creation as a result. We expect the unemployment rate to stay elevated for a while yet, but given where the economy has been over the last couple of years we have to walk before we can run.”

Three of the five sub-indices were in expansion mode, with only stocks/inventories (49.2) showing slight contraction after three consecutive months of slight expansion. New orders (58.9) continued to lead the way with another strong result, while activity/sales (55.6) also picked up from January to record a value similar to December. Employment (50.6) fell 2.1 points from January, but still remained in expansion for the fifth consecutive month. Supplier deliveries (50.0) slipped 0.3 points from the previous month to remain unchanged for February.

Activity was positive for three of the four main regions during February, with the Otago/Southland region (55.7) just ahead of the Northern region (54.7). The Central region (51.1) again fell back for the second consecutive month, while the Canterbury/Westland region (46.8) experienced its first contraction since June 2009. This was mainly due to a fall off in all sub-indices except new orders/business, which remained strong in that region.


Link here to view the February PSI
Link here to view time series data