Service sector shows strong pick up in expansion

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The level of expansion in the service sector last month was the highest recorded since the Business NZ Performance of Services Index (PSI) survey began five months ago in April.

The August PSI stood at 59.4, which was up 4.2 points from July, and 0.9 points higher than the highest result previously recorded in May (58.5). A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining

All five diffusion indices that make up the PSI showed expansion in August. New orders/business (65.4) was again the leading index, although showing the second lowest result when compared to previous months. Activity/sales (63.5) recorded its highest value, as did supplier deliveries (56.5) and employment levels (54.4).

Activity was again very similar across most parts of the country, with only 1.7 points separating the top and bottom values. The Northern region (59.9) continued to display the highest level of expansion for the month.

Most service sectors showed expansion during August, led by wholesale trade (62.6). Health & community services (61.1) were in second place, while property & business services (57.6) continued to slip in terms of rankings. At the other end, accommodation, cafes & restaurants (53.1) showed the lowest level of expansion, although improved from the previous three months.

Business NZ chief executive Phil O’Reilly said the strong August result was an encouraging bounce back from a general trend downwards over recent months.

“The high result for activity/sales levels has boosted overall activity, while the lift in the rate of new orders/business expansion should help in ongoing activity towards the last quarter of 2007. However, those in the service sector are continuing to deal with various adverse issues, including higher interest rates and a lack of skilled and unskilled workers”.

The number of negative and positive comments relating to activity for August was almost identical to July (52.7% positive compared with 47.3% negative). In comparison to the same time last year, activity for those with negative comments for the current month had an average score of 3.2 (where 1=large rise and 5=large fall), compared with 2.1 for those enjoying positive activity at present. Overall, the national result for activity compared with 2006 stood at 2.6, slightly down from 2.7 in July.