Services sector expands slightly in January

Monday 21st February 2011

A measure of the services sector found it just managed to keep expanding in January, while a new composite measure of services and manufacturing did a little better.

The BNZ-BusinessNZ performance of service index (PSI), published today, dropped a seasonally adjusted 1.3 points from December to a reading of 50.8 last month.

While four of five sub-indices were in expansion, the sub-index showing contraction was employment, which dropped to its lowest result since August 2009 at 47.8.

The new orders sub-index stood at 54.8, stocks/inventories were 51, activity/sales were 50.3 and supplier deliveries 50.2.

A reading above 50 indicates activity is expanding, below 50 that it is contracting.

A new measure was also introduced to combine the PSI with the performance of manufacturing index (PMI), which was published last Thursday and came in at 53.7 for January.

Called the performance composite index (PCI), the new measure comes in two versions - GDP-weighted and free-weighted.

The GDP-weighted PCI is based on the proportion that each of the PMI and PSI represent of GDP - one-eighth for manufacturing and two-thirds for services. The free-weighted PCI throws all the responses together.

BNZ senior economist Craig Ebert said the two versions of the PCI should "capture the bounds of belief in the economy's performance, while leaving readers to assign the emphasis they prefer".

Since April 2007, when the PSI started, the free-weighted PCI had been choppier than the GDP-weighted version, but the free-weighted PCI also arguably gave a better warning of the degree of recession the economy was entering in 2008/09.

The two versions of the PCI had been similar enough from about mid-2009.

For last month the GDP-weighted PCI was a seasonally adjusted 51.3, down from 52.2 in December, while the free-weighted PCI was 52.2 from 52.6.

"While still positive, these results don't inspire confidence of a strong pick-up being under way," Ebert said.

Despite that, the two PCI versions had been in expansion since late-2009.

That did not produce a message that the economy was re-entering recession, as many commentators were starting to conclude, rather, that earlier optimism had given way to a sense of frustration.

While employment indices looked flat in the PCIs, new orders showed a reading of 55.5 on the free-weighted PCI and 57.6 on the GDP-weighted version.

"These results are inconsistent with the notion the economy is going flat, let alone backwards," Ebert said.

"Still, the near-term indicators will need to be monitored closely in order to gauge which way the winds blow in what remains a potentially turbulent year."

NZPA

Comments from our readers

No comments yet