NZ services industry slips back into contraction, underlining tepid recovery

Monday 16th November 2009

New Zealand’s services sector contracted in October for the first time in four months, underlining the tepid pace of economic recovery that’s convinced the central bank to keep its key interest rate at a record low.

The BNZ Capital-Business NZ Performance of Service Index (PSI) fell 3.3 points last month from September to 49.9, the first time since June the measure has been below 50, the level that separates contraction from expansion. The deterioration was led by a drop in activity/sales and new orders/business.

The PSI comes after government data last week showed retail sales volumes just managed to eke out growth in the third quarter, with a 0.1% increase, while Warehouse Group Ltd, the biggest retailer on the NZX 50, said revenue has been tracking lower than expected. Reserve Bank Governor Alan Bollard last month said that while there are “welcome signs” that economic activity is picking up, “there remain significant vulnerabilities and challenges to be worked through” globally which could drag on New Zealand’s economy.

The PSI and last week’s retail sales figures are “not yet showing any clear signs of advancement, although there is patently a sense of stability forming in both,” said Craig Ebert, economist at Bank of New Zealand. “We believe an improvement is beginning to emerge, such that we’ll see some moderate expansion through the December quarter.”

Three of the five diffusion indexes within the PSI showed contraction last month. Activity/sales dropped 9.6 points to 48.4 while new orders/business fell 6 points to 52.6. Employment rose to 50.4, the first time it has become expansionary since February last year. Stocks/inventories were little changed at 47and deliveries held at 49.1.

Across the sectors, transport and storage picked up to 55.2 while retail traded edged lower to 53.6. Property and business services remained weak at 48.7 as did accommodation, cafes and restaurants at 43.8.

Businesswire.co.nz

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