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Services sectors grow gradually

Monday 19th July 2010

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A June survey of the service sector supports other statistical data, revealing a very much ‘steady as she goes’ gradual improvement to New Zealand’s economy, according to Bank of New Zealand economists.

The BNZ-BusinessNZ performance of services index rose 2.2 from May to stand at 55.7, the eighth consecutive month of expansion and the highest June result since 2007. A PSI reading above 50 points indicates services activity is expanding, below 50 indicates it is contracting.

The lift in the June PSI is an encouraging sign, said BNZ senior economist Craig Ebert, backing up last week’s strong performance of manufacturing index for June as well.

“A drop did seem the more palpable risk this month, given the market turmoil of late, which has certainly reflected in a number of global PSI and PMI indices falling by the wayside, including in respect of China,” Ebert said.

“The relative robustness of the NZ PSI and PMI in June is also significant in that it runs counter to the signs of sharp domestic slowdown suggested from recent anecdotal and sentiment surveys. Is it too much to suggest, therefore, that we now simply have reasonable confidence in the likelihood of reasonable growth, rather than overly ambitious expectations of performance that was always going to feel disappointing by comparison to reality?”

Ebert said it is important to realise that in a developed economy such as New Zealand’s, services make up about 70% of economic output, with manufacturing at about 30%.

Among the sub-indices measured in the PSI, comparing June with May, activities/sales were up 2.6 points to 57.9, new orders/business lifted 2.9 points to 59, employment experienced the greatest lift at 4.5 points to 55.2, its highest since June 2007, and both supplier deliveries at 51.7 and stocks/deliveries at 50.1 remained in a tight band of results that have continued for eight and four months respectively.

Unadjusted activity was again positive in the North Island, but negative in the South Island, which could be partly due to seasonality skews. The northern region lifted 5.7 points between May and June to record 58.1, the central region fell 3.3 points but is still positive at 51.6.

Both South Island regions remained in contraction for the third consecutive month, with Canterbury/Westland at 46 up slightly from May, while the Otago/Southland region fell 9.6 to 38.7.

The various service sectors showed contrasting results, with property and business services remaining largely unchanged at 60.1, and transport and storage improved to 58. Retail trade fell back to 41.5, and accommodation, cafes and restaurants at 39.9 continued to stay just below the 40 mark.

The recent robustness of the PSI and PMI is important, Ebert said.

“In total, and through their components, they formulate a reasonably robust picture on GDP growth,” he said.

“It’s more than a relief. The recovery fights back.”

Businesswire.co.nz



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