Service sector keeps its head above water

Despite a dip in expansion, the service sector activity continued to keep its head above water, according to the BNZ - BusinessNZ Performance of Services Index (PSI).

The PSI for October was 52.0.  This was down 2.9 points from September, but the highest October result since 2007 (57.7).  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 53.6.

BusinessNZ chief executive Phil O’Reilly said that while it was disappointing the October result didn’t kick on from September, the sector as a whole remains on the right side of the ledger.

“The sector has now experienced one full year in expansion, with healthy levels of new orders/activity continuing momentum for future months.  No doubt for many, the approaching Xmas period may provide additional impetus, as well as better weather conditions.

BNZ’s Head of Research, Stephen Toplis, said “It’s a pity that the overall sentiment in the services sector dropped away in October. But, perhaps, on reflection, it’s remarkable that confidence is as high as it is given that business (on average) was being adversely impacted by the Canterbury earthquake; the Southland storms; the post GST sales’ malaise and ongoing softness in housing market activity across the nation. We thus take some heart that the seasonally adjusted PSI of 52.0 remains consistent with our story that the economy slowly, but surely, continues to expand.”

Unadjusted activity by region returned to a similar pattern experienced earlier in the year, with the North Island showing expansion and the South Island showing decline.  The Northern region (55.3) again led the way, although down 3.2 points from September.  The Central region (51.5) experienced a similar drop from the previous month, returning to levels seen in June.  The South Island experienced a consistent level of decline, with the Canterbury/Westland (45.0) and Otago/Southland (45.5) regions falling back into contraction for six of the last seven months.

Despite the reduction in expansion, four of the five sub-indices were again in expansion mode during October.  Both new orders/business (53.1) and activity/sales (54.9) reversed gains experienced in September, falling 3.8 and 2.4 points respectively.  Employment (49.8) was flat in October, down 3.6 points from the previous month, and the lowest value since November 2009. Stocks/inventories (50.1) were largely unchanged from September, while supplier deliveries (50.5) fell 2.5 points. 

Link to the October PSI

Link to time series data