Phil O’Reilly

Increased levels of new business/orders is assisting service sector expansion, according to the latest BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for May was 56.8. This was almost identical to the April result (56.7) and the highest result for any month since November 2011. A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining. The 2012 May result was also the second highest value recorded for that month since the survey began in April 2007.

BusinessNZ chief executive Phil O’Reilly said that the solid and consistent result for May was pleasing to see, as it was built on key elements of the Index remaining strong.

“Like last month, the key indices of new business/orders and activity/sales experienced a swing upwards, with the former at its highest point since November 2011. It is also the first time since 2007 that new orders/business have posted consecutive post-60 values. On top of this, the Northern region has gradually seen an improvement in overall activity levels, which is important in building momentum.

“If we also take into account the improved manufacturing result via the PMI, combined, the sectors display a level of activity that is certainly encouraging heading towards the middle of the year.”

BNZ senior economist Craig Ebert compared the impressive progress of New Zealand’s PSI to that of the USA, Europe, Australia and China.

“New Zealand’s PSI is fast becoming something of a leading light on the global stage. It has overtaken America’s PSI, and unsurprisingly it’s far stronger than the Euro-zone’s, but who would have thought it would be far stronger than Australia’s? It is also fast catching up with the always sturdy, but recently slowed, Chinese PSI.

“Add this to the much-recovered PMI and one gets the impression that New Zealand’s GDP could be a corker in Q2.”

The seasonally adjusted BNZ – BusinessNZ Performance of Composite Index or PCI (which combines the PMI and PSI) for May showed the two options for measuring the PCI both up from April, and at almost identical levels of expansion. The GDP-Weighted Index (56.7) increased 1.1 points from April as the stronger manufacturing result helped boost expansion on top of existing service sector expansion. This meant the Index was at its highest since March 2010. The Free-Weighted Index (56.8) increased 4.1 points after a drop in April, but the lift was not large enough to beat the 57.6 recorded in February this year.

All five sub-indices again showed expansion in May. This was led by new orders/business (63.1) for the 20th consecutive month, but the highest level of expansion recorded since November 2007. Activity/sales (58.3) built on its boost in April, while supplier deliveries (55.4) also edged up from the previous month. In contrast, stocks/inventories (52.3) decreased 1.2 points, while employment (50.7) experienced a set-back, decreasing 4.5 points from April.

Unadjusted activity was expansionary for three of the four regions. Both the Northern (55.8) and Central (57.7) regions improved on their April result, with the former recorded its highest level of activity since November 2011. The South Island was a mixed bag with the Otago/Southland region (46.5) coming off a strong month to return to a sub-50 value for May. The Canterbury/Westland region (54.5) remained in expansion, although down 4.4 points from April.