2008 starts slow for services sector

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Expansion in the services sector continued to ease for the first month of 2008, according to the Bank of New Zealand - Business NZ Performance of Services Index (PSI).

The PSI for January stood at 51.9, which was 2.0 points below the December result. A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining. The survey, which launched in April 2007, has an average score of 57.5.

Business NZ chief executive Phil O’Reilly says the dip in activity, which has carried over from the December month, was not an unexpected result on the back of the Christmas holiday season where many service sector businesses shut down or significantly reduced their activity.

“The next few months should see activity pick up, although other comments received point to a tightening of belts by consumers. On balance, activity in January 2008 was not as high as January 2007, indicating a more sluggish start to the year,” he says.

All five diffusion indices that make up the PSI continued to exhibit expansion, although two of the key indicators produced their lowest result. New orders/business (55.6) again led the way, but produced its second consecutive sub-60 result. Activity/sales (50.2) were close to no change, while employment (51.8) and deliveries (51.1) produced similar results.

Regional activity was again lower throughout the country, with the Otago/Southland region (40.9) continuing to exhibit the sharp decline in activity evident in December. This was mainly due to very low activity and new order results. The Canterbury/Westland region (55.6) again led the January values, while both North Island regions showed moderate growth.

Most service sub-sectors continued to show expansion for the start of 2008, with accommodation, cafes & restaurants and health & community services (both 56.1) sharing the top spot for activity. The only decline was for wholesale trade (49.1), although its value for January was an improvement on December, and probably indicative of seasonal factors.

The downwards movement on the rate of expansion continues to closely mirror the fall of positive comments received, which fell from 50.2% in December to 43.5% in January.