Pass mark for mid year report

15 August 2011

Pass mark for mid year report

The service sector experienced a solid if unspectacular result halfway through 2011, according to the BNZ - BusinessNZ Performance of Services Index (PSI ).

The PSI for July was 54.5. This was very similar to the June result of 54.7 and the highest July result since 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 2009 was 48.8, while for 2010 it was 53.2. So far for 2011, it is 52.6.

BusinessNZ chief executive Phil O'Reilly said that the July result provided both positive and negative aspects for the sector.

"While the results for both June and July represented an ongoing and steady level of expansion, the dip in employment to its first decline since January 2011 was disappointing given it had managed to keep its head above water for the previous five months. However, one particular pleasing aspect was the ongoing incremental lift in new orders/business, which may continue in the months ahead as increased business comes out of earthquake related recovery work and the rugby world cup."

The BNZ - BusinessNZ Performance of Composite Index (PCI), which combines the results of both the PSI and PMI, shows that both options for measurement lost a little steam in July (values of 54.5 and 54.4). However, both results were still higher than the May 2011 figures.

Bank of New Zealand's Head of Research Stephen Toplis said that July's PSI provided yet further evidence that the New Zealand economy had plenty of momentum prior to the financial market volatility of last week.

"Unfortunately, it's likely that the global equity rout, in particular, will have a negative impact on confidence next month. We will await the next set of indicators with baited breath in the hope that the fall out is not excessive."

Four of the five sub-indices were in expansion during July, with new orders/business (58.6) continuing its upwards trend with its highest result since March 2010, while activity/sales (56.3) slipped slightly from its June result. Stocks/inventories (53.5) also dipped from June, although supplier deliveries (52.0) recorded its highest value since September 2010. Lastly, employment (48.8) recorded its first decline in employment since January 2011.

Activity by region represented a tale of two islands for July. The Northern region (53.5) increased 1.4 points from June to record its highest result since March 2011, while the Central region (54.1) slipped for the second consecutive month. The Canterbury/Westland region (45.4) experienced a significant drop to its lowest result since March 2011, while the Otago/Southland region (46.0) continued to slowly improve on recent results, although remains in contraction for the seventh consecutive month.

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