Services Sector shows healthy signs of recovery

Service sector expansion for May continued a solid run of recent expansion, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

BusinessNZ Chief Executive Phil O’Reilly said that the healthy levels of activity evident for four consecutive months, is helping the sector follow a brighter path for growth than it was in recent years.

“However, it is important to point out that the first few months of 2012 started out in a similar fashion, but faded during the winter months. Time will tell whether other recent and positive economic indicators for the economy will lead to further expansion in the service sector,” he said.

According to BNZ economists, this is the strongest sustained growth pulse seen from the services sector since the economy began grinding its way out of recession in 2009.

“No wonder the PSI jobs index is now turning clearly positive,” they said.

Manufacturing grows

As mentioned, the PSI for May 2013 was robust, although not as fierce as the month’s Performance of Manufacturing Index (PMI), which stood at 59.2. That was stunning (surely close to the highest PMI of its type in the world now).

But at a seasonally adjusted 56.2, the latest PSI was still solid enough to infer sturdy growth across most of the economy. Adding the big PMI for May boosts the chances of seeing better than expected GDP numbers in the second quarter and thereafter.

The recent run of positives in the Public Sector Index (PSI) has established a three-month average, the highest since 2007.

On this three-month rolling basis, New Zealand’s Service Sector Index has definitely overtaken the US and has even surpassed China’s PSI, which averaged 54.8 over the three months to May 2013.

Perhaps more significantly, the NZ PSI is gathering momentum as Australia’s PSI is losing pace, with its three-month average down at 44.8.

This is yet another point of stark difference. The Eurozone PSI is not as bad as Australia’s PSI but below the 50 mark that demarcates expansion from contraction.

Canterbury slows

The recent strength in the NZ PSI was not particularly driven by Canterbury. As per unadjusted regional performance, Canterbury and Westland actually slipped to 47.3, Otago and Southland was at 51.9, Central registered a creditable 53.2, while the Northern Zone raced ahead to 58.6.

This rough pecking order was also borne out by three-month averages.

The Employment Index in the latest PSI picked up again, having lost momentum in April.

Looking across the jobs indicators of the PSI and PMI, we can feel more comfortable about seeing further staffing expansion in the official labour market data, as produced by Statistics NZ.

This could yet prove significant in lowering the unemployment rate into the fives, which would be something to think about in the context of core inflation.

Craig Albert is an Economist at BNZ, which is the Title Sponsor of the Indian Newslink Indian Business Awards 2013 and the Sponsor of the Best Large Business Award and the Supreme Business of the Year Award. BNZ is also sponsoring the visit of Nawab Mohammed Abdul Ali Azimjah, the Prince of Arcot and his wife Sayeeda Begum to attend our Awards Night Presentation Ceremony, scheduled to be held on Monday, November 19, 2013 at the Sky City Convention Centre in Auckland.

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