Service sector booming

June 18, 2007

Service sector booming

Service sector activity is still on the increase, according to Business NZ's new monthly survey.

The Business NZ Performance of Services Index (PSI) for May stood at 58.5, up 0.2 on the previous month. A PMI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining.

The May PSI shows growth in all component indexes, with the highest growth recorded for new orders (67.8), indicating ongoing expansionary activity in the foreseeable months ahead. The lowest result was for employment (51.2) which, although positive, is indicative of the wider problem most businesses are currently facing regarding labour shortages and expectations of slower employment growth.

The survey of the service sector draws on data from about 300 service companies across New Zealand and provides an early indicator of activity levels in the sector.

A similar structure to the Business NZ PMI and compatibility with surveys in the US, EU, Asia and Australia allows for valid comparisons with other countries.

Business NZ economist Stephen Summers says the result for May was positive and in line with similar indicators of the service sector which show continued strong growth. However, he warned about any complacency in the sector.

"The fact that strong growth continues this month is good, but there are constraints within this sector which could be holding it back. Concerns about skill shortages, the effect of the high New Zealand dollar and increased interest rates on consumption will certainly have a dampening effect on the ability for further growth."

Despite the strong overall result for May, the number of negative and positive comments relating to activity over the month was very similar (55.5 per cent positive compared to 45.5 per cent negative). There has been a slight increase in the percentage of positive comments compared to the previous month, which is in line with the slightly greater expansion evident in May.

ENDS

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