The service sector returned to a more subdued level of expansion in December, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for December was 50.6. This was down 5.6 points from 56.2 in November, and 0.2 points lower than the October result. 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 over 2011 was 52.6. While this was better than the 48.8 recorded for 2009, it was lower than the 53.2 recorded for 2010.

BusinessNZ chief executive Phil O’Reilly said that like its sister survey the PMI, 2011 saw the PSI ending with more of a whimper than a bang, as the November result was sandwiched between two lacklustre results.

“While the PSI has now remained in positive territory for 26 consecutive months, it has struggled to push any higher than moderate levels of expansion. The results for December and October indicate that the sector may struggle for stronger expansion in the near future.

Bank of New Zealand senior economist Craig Ebert said the December PSI gives a sense of ongoing progression, underscored by its employment component remaining in expansion territory.

“This survey’s constructive view on staffing is encouraging, and corresponds with other surveys produced in the last couple of months, all signalling ongoing growth on the jobs front.”

The BNZ – BusinessNZ Performance of Composite Index (PCI), which combines the results of both the PSI and PMI, returned to historical patterns with the two options for measuring the PCI (GDP weighted and free weighted) showing the exact same result of 50.7. This was mainly due the sub-indices for both options producing very similar values throughout.

For the first time since August 2011, only three of the five sub-indices showed expansion in December. This was again led by new orders/business (53.6) followed by employment (52.7) and stocks/inventories (51.9). Activity/sales (49.7) went into decline for the first time since July 2010. Likewise, supplier deliveries (48.6) went into contraction for the first time since March 2011.

Unadjusted activity was again expansionary for all four main regions in December. The Canterbury/Westland region (55.3) led the way, although it recorded its lowest level of expansion since July 2011. The Central region (54.5) was close behind, while the Northern region (51.7) lost most of its gains in November. The Otago/Southland region (50.5) managed to just keep its head above water, despite falling 10.3 points from November.