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Service sector only just expands in August

Monday 20th September 2010

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New Zealand’s service sector expanded, just, in August, led by new orders and increased sales activity, according to the latest BNZ-Business NZ Performance of Service Index.

The August PSI, in which a figure above 50 indicates services activity is expanding, stood at 51.4, up one point from July, but the second lowest level of activity since October 2009.

“If New Zealand’s manufacturing sector is jogging on the spot, then the services sector is going doggy paddle,” said Craig Ebert, senior economist at Bank of New Zealand.

“The NZ household faces a period of painful rebalancing, especially with the housing market likely to remain in the deep-freezer for the foreseeable future.”

Three of the five sub-indices were in expansion in August, with both new orders/business and activity/sales on 53.9, the former unchanged from July, while the latter lifted 3.6 points during the month.

BNZ’s Ebert said there’s still some upside to the recovery, with an improving labour market and looming tax cuts, “as well as farming income made solid by good international prices and production recovery from drought. It’s not all bad news in other words”.

Employment at 51.8 nudged up 0.7 points from July, supplier deliveries dipped 0.1 points to 47.1, and stocks/inventories fell back 5.6 points to 46.5, a level almost identical to August 2009.

Regional activity was mainly contracting throughout the country, with the northern region on 54.3 the only expansionary figure during August, up 3.4 points. The central region at 49.7 recovered from July’s 43.3, Canterbury/Westland at 46.3 and Otago/Southland at 47.2 both nudged ahead of July’s figures.

Like July, all but micro-sized firms with 1-10 workers at a level of 48.4 continued to experience some level of expansion in August. Largest sized firms, with 100+ people, at 56.4 saw the strongest improvement compared to July.

The number of positive comments from the sector also rose, reaching 46.2% in August compared to 40.1% in July, though still down on June’s 47.9%.

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