Slow slog for service sector

BusinessNZ chief executive Phil O'Reilly Photo / Mark Mitchell

Growth in New Zealand's services sector has fallen flat heading into Christmas, but indications are there will be a pick-up in activity during 2011, an economist said.

The latest BNZ - Business NZ Performance of Services Index (PSI) rose 0.2 points to 51.4 points during November - the second lowest November result since the survey began.

A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining.

BusinessNZ chief executive Phil O'Reilly said that while the first half of 2010 had shown a healthy level of expansion, the second half was less encouraging, with activity clinging on to expansion.

"Since July onwards, results have generally underlined the cautious approach consumers are taking at present with their spending habits."

Good weather had provided a boost to sales for some, but a general lack of orders, demand and work had causing "ongoing concern" in what was traditionally the busiest time of year for many, O'Reilly said.

BNZ economist Doug Steel said that while a dead-flat result overall was not the best news to head into the Christmas break, the good news was that the economy still appeared to be in recovery.

"In our view, a flat result should be read as a pause in the broader recover process. The detail in the results indicates that economic growth will pick up into 2011.

"It's pleasing to see new orders leading the charge, and transport activity is at its highest three month average since the survey began in mid-2007. Given transport's role in many economic transactions, this gives cause for confidence."

Despite the small pick up in expansion, only two of the five sub-indices were in expansion mode during November.

Supplier deliveries (47.5) experienced the lowest result, followed by employment (48.8).

Stocks/inventories (49.9) remained largely unchanged from the previous month, although now technically in contraction.

Encouragingly, new orders/business (54.4) improved from its October result to lead the way in November, although activity/sales (50.5) dropped 2.5 points, albeit still in expansion.

- NZ HERALD ONLINE