Service sector looking up

The first month of spring sees several bright signs for the service sector, according to the BNZ Capital - Business NZ Performance of Services Index (PSI).

The PSI for September stood at 53.2, which was 1.9 points up from August.

Business NZ chief executive Phil O'Reilly said that the ongoing momentum in overall activity will most likely continue as positive comments from respondents tended to focus on Christmas approaching, the weather improving and people feeling more confident about spending.

Certainly, the more forward-looking new business/activity component of the PSI continuing to edge up should filter through to activity/sales during the last quarter of the year.

"New Zealand remains on track with offshore developments in the service sector, as evidenced with results from the JPMorgan Global PSI at 52.2 for September. Also, we continue to remain above Australia (49.9), which also shows improvement but at a slower pace."

BNZ Capital head of research Stephen Topliss predicts the economy will be expanding at an above-trend pace by the end of next year, as domestic and international growth continues to push higher. However, there are still some uncertainties as to the sustainability of the expansion.

"All of the economy's key leading indicators are pointing to a much stronger year ahead, with a 2.3 per cent GDP expansion forecast for 2010, whereas it contracted 1.6 per cent over calendar 2009. But the immediate expansion may be held back by the pace of the currency's appreciation, along with other imbalances that remain, including the poor household savings ratio and mounting international debt."

Activity was positive for three of the four main regions during September, with the Northern region (55.8) recording its highest result since November 2007, as well as the strongest regional result for the current month. The Central region (50.4) fell back slightly from August, although still exhibited slight expansion. The Canterbury/Westland region (51.5) also experienced a dip in expansion after consecutive values above 53.0, while the Otago/Southland region (45.6) dropped back to levels experienced in June/July after a brief recovery in August.

In comparison with previous years, the September result was 6.3 points up from September 2008, but 5.8 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 47.3.