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October Falls Flat For Service Sector Activity

October Falls Flat For Service Sector Activity

Media release
16 November 2009

After three months of expansion, the service sector fell flat during October, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for October stood at 49.9, which were 3.3 points down from September, and the first time since June 2009 that activity was below 50.0. In comparison with previous years, the October result was 1.2 points up from October 2008, but 8.5 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 47.6.

Business NZ chief executive Phil O’Reilly said that despite a significant improvement in the key indicators of activity/sale and new orders/business during September, both fell back sharply in October, with the former retreating back into contraction mode.

“Despite the set back heading into the last quarter of the year, the result for October meant the sector largely stayed the same, so at least not a return to the significant contractionary periods experienced in 2008 and for most of 2009. Also, despite the flat result it was pleasing to see positive movement in employment, which had previously recorded decline for 19 consecutive months.

“The flatness in activity was also mirrored in comments by respondents, with many noticing a lull in their respective markets. No doubt for many, the approaching Xmas period may provide some relief, while the recently announced revised dairy pay-out may also provide an end of year boost for those sectors providing services in particular to rural communities.

BNZ Capital senior economist Craig Ebert said that while there’s not yet any clear signs of advancement in the Performance of Services Index nor the latest retail sales statistics, there’s a sense of stability forming in both.

“We believe an improvement is beginning to emerge, such that we’ll see some moderate expansion through the December quarter – in line with indications from the improvement in such things as consumer sentiment and the housing market. However, it’s nothing that looks particularly strong at the moment.”

The two major contributors to the drop in overall activity came from a 9.6 point fall in activity/sales (48.4) and a 6.0 point fall in new orders/business (52.6). In contrast, employment (50.4) displayed its first (albeit small) expansion since February 2008. Both stocks/inventories (47.0) and deliveries (49.1) remained largely unchanged from September.

Activity was positive for two of the four main regions during October, with the Canterbury/Westland region (54.5) leading the way with its highest level of expansion since December 2008. The Central region (51.6) jumped back to its level experienced in August, while the Northern region (48.9) fell 6.9 points after three consecutive months of expansion. The Otago/Southland region (47.5) improved on its previous months’ result, but remained the poorest performing region for the second consecutive month.

Link to the October PSI
Link to time series data.


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