Service sector keeps expanding in Feb

The service sector expanded in February, but research shows times are tough in the retail sector. Photo / Herald on Sunday

The services sector continued to expand in February, but some indicators suggest the recovery could be reaching a plateau at a level insufficient for strong jobs growth.

The BNZ - Business NZ performance of services index rose 0.6 points from January to 53.7 last month. A reading above 50 indicates the services sector is generally expanding.

BNZ economist Doug Steel said the services sector was extending the recovery that started around July.

But readings for the retail trade and transport sectors were both below 50 - indicating contraction.

The weakness in retail trade followed solid months in December and January and could reflect a pullback for the Christmas and New Year sales period, said Steel.

While a one-month dip was hardly a trend, it did tie in with other weaker-looking indicators for retail sales.

"We are starting to wonder if some of the weakness reflects households materially increasing their savings rate (at long last)."

For the survey in general, there was a hint of a plateau developing in recent months. Even back to November, movements within the sub indices had been in relatively tight ranges, Steel said.

While services sector activity continued to expand, acceleration seen through the mid to latter part of 2009 may be tapering off.

A lack of acceleration would be important given the current rate of expansion seemed enough for only mild net job creation.

Three of the survey's five sub-indices were in expansion mode, with only stocks/inventories (49.2) showing slight contraction after three consecutive months of slight expansion.

New orders (58.9) continued to lead the way, while activity/sales (55.6) also picked up from January to record a value similar to December. Employment (50.6) fell 2.1 points from January, while remaining in expansion for a fifth consecutive month.

Supplier deliveries (50.0) slipped 0.3 points from the previous month to be unchanged for February.

- NZPA