Service sector closes 2010 on similar note

Overall activity in the service sector for the last month of 2010 ended up being a repeat of 2009, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for December was 52.5. This was up 0.8 points from November, and the same level of activity as December 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 2008 was 49.1, while for 2009 it was 48.8. Encouragingly, the average score for 2010 was in positive territory at 53.2.

BusinessNZ chief executive Phil O’Reilly said that while it would have been good to see the service sector experience a stronger end to the 2010 year, there were still positives to take out of what continues to be a difficult environment for many businesses.

“Throughout 2010 the sector has remained in expansion, compared with seven of twelve months in contraction for 2009. Also, new orders/businesses continue to exhibit healthy results, which will hopefully translate into further sales in the months ahead. Globally, the service sector is reaching activity levels not seen since 2007, which should provide further momentum towards a recovery and sustained growth.

Bank of New Zealand economist Doug Steel said, “Retailers have experienced consumer spending restraint first-hand over recent years.

“Underlying restraint has extended to late 2010, judging by last week’s retail sales data for November and the previously released dip in electronic card transactions in December. The latest data have continued the recent traits of consumer spending – volatile with underlying weakness. Business surveys suggest some improvement ahead in 2011.”

Three of the five sub-indices were in expansion mode during December, with two indices remaining largely unchanged compared with previous months. Employment (49.4) remained within the 49-point range for the third consecutive month, while stocks/inventories (50.9) remained in the 50-point range for the fourth consecutive month. Encouragingly, new orders/business (56.8) continued to improve, closely followed by activity/sales (56.3). Supplier deliveries (48.7) remained in contraction for the second consecutive month.

After a tale of two islands during October and November, December saw all four main regions experience expansion. The Northern region (54.7) remained in expansion, although slightly down on previous results. Interestingly, the Northern region was the only one to experience expansion for every month of 2010. The Central region (51.6) returned to expansion levels experienced in October, while both the Canterbury/Westland (50.1) and Otago/Southland (61.0) improved from almost identical levels of activity in November.

Link to the December PSI
Link to the time series data