Steady as she goes for service sector pick-up

The service sector continued to show improved signs of growth, despite some areas of the sector still facing difficult times, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for June was 55.7. This was 2.2 points up from May, and the highest June result since 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 2008 was 49.1, while for 2009 it was 48.8. So far, the average score for 2010 is 54.7.

BusinessNZ chief executive Phil O’Reilly said while the improvement in June has kept overall sector expansion on a fairy steady and consistent level for eight months now, digging behind the main numbers shows some strong contrasts in terms of expansion and decline.

“The word patchy has been a well used recently to describe how many sectors have been performing, and this is certainly true when the June results are broken down by region, industry or size. Each indicator shows contrasts of strong expansion in some, compared with ongoing contraction in others. A return to levels of expansion before the global recession hit requires broad, consistent growth in all facets of the service sector.”

BNZ Senior Economist Craig Ebert said the survey was another indicator of the likelihood of reasonable growth.

“New orders were still champing at the bit, with a seasonally adjusted 59.0. The activity indicator was solid, at 57.9. Employment was a healthy looking 55.2 – the highest in three years. The laggard was inventories, with 50.2, but this is not necessarily a bad sign if it reflects stocks are simply being well managed.”

All five sub-indices were in expansion mode for the fourth consecutive month, with four of them recording a higher value than in May. Activities/sales (57.9) rose 2.6 points from May, while new orders/business (59.0) rose 2.9 points. Employment (55.2) experienced the greatest lift, rising 4.5 points from May to record its highest level since June 2007. Both supplier deliveries (51.7) and stocks/inventories (50.1) remained within a fairly tight band of results that have continued for eight and four months respectively.

Unadjusted activity was again positive in the North Island, but negative in the South Island. The Northern region (58.1) led the way with activity for the first time since September 2009. The Central region (51.6) dropped 3.3 points from May, but still remained in expansion. In contrast, both South Island regions remained in contraction for the third consecutive month. The Canterbury/Westland region (46.0) improved slightly from May, while the Otago/Southland region (38.7) experienced a significant fall.