New orders/business boosts service sector activity for August

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The service sector continued on its road to recovery as the August result provided the first consecutive monthly expansion since early 2008, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for August stood at 51.3, which was 1.2 points up from July. In comparison with previous years, the August result was 3.4 points up from August 2008, but still 8.1 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 46.6.

Business NZ Chief Executive Phil O’Reilly said the results were positive for two reasons. The first being the historic low point of 43.7 in April looks well and truly over as new orders/business has been particularly strong over July and August. Although this is still not at the level experienced during 2007, it is quickly heading in the right direction.

“Second, the New Zealand result is mirroring offshore developments, with the JP Morgan global PSI for August (50.5) showing expansion for the first time since May 2008. Part of this global recovery has also come from a significant improvement in new orders and activity/sales.”

BNZ Capital Head of Research Stephen Toplis said the services sector has stayed positive thanks to “a jump in dairy prices, and active Government and heaps of Aussies” coming to our shores for winter holidays.

However, he added that “the data come with a health warning that hard evidence of a recovery is now going to be needed to keep confidence headed in the right direction,” yet he believes “the recession is done and dusted, that activity levels have now stabilised, and a genuine pick up is set in place for calendar 2010.

“The PSI is mimicking other indices in suggesting that even the laggard labour market is staring to show signs of life. Added to this, August saw the first serious recorded jump in dairy commodity prices after a long string of heartbreaking falls.”

Only two of the five diffusion indices that make up the PSI exhibited expansion during August, but one of the key indicators involving new orders/business (57.6) built on its strong gains in July to exhibit its highest result since February 2008. Activity/sales (50.5) fell 1.2 points from the previous month, but still remained in positive territory. Employment (49.3) continued to show improvement with its highest level since November 2008, while stocks/inventories (48.0) rose significantly from July. Deliveries (47.9) continued to pick up from an historic low in June, as well as being the highest value since March 2009.

Activity was positive in all of the four main regions during August, with the strongest activity levels in the South Island. The Northern region (50.2) slipped 1 point from July, although remained in positive territory and the first time since January/February 2008 that it recorded consecutive monthly expansion. The Central region (51.6) showed expansion for the first time since January 2009, and climbed out of the June/July results which were historic lows. Both the Canterbury/Westland (53.9) and Otago/Southland (58.0) regions improved from July, with the later experiencing its first level of expansion since December 2008, and its highest level since February 2008.

Link to the August PSI
Link to time series data

For media comment: Stephanie Moakes, ph 04 496 6554, or 021 959 831
Stephen Topliss ph 04 474 6905

Full results are available on www.businessnz.org.nz under ‘PSI Reports’. For more information or assistance with data interpretation contact Stephen Summers: 04 4966564, ssummers@businessnz.org.nz. The BNZ Capital - Business NZ PSI draws on the depth of member companies associated with Business NZ: Employers and Manufacturers Association (Northern), Employers and Manufacturers Association (Central), Canterbury Employers’ Chamber of Commerce, Otago Southland Employers Association, Hospitality Association of New Zealand, New Zealand Retailers Association and the Tourism Industry Association New Zealand. The survey is sponsored by BNZ Capital.