The service sector continues to see its level of expansion slip lower, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for December was 51.5. This was down 2.7 points from November, following a 3.6 fall from October (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). Over 2012, the PSI has averaged 53.8, with all but one month (August) in expansion. Compared to previous December results, the 2012 value was almost identical with 2011.

BusinessNZ chief executive Phil O’Reilly said that 2012 had been mostly positive for the service sector, although the second half of the year provided mixed results.

 “When comparing the PSI with its sister survey the PMI, the service sector has held up despite another difficult trading year. However, 2012 has ended with more of a whimper than a bang as new activity/sales slowed and employment remained lacklustre.

 “Globally, the service sector has shown incremental improvements over the latter half of 2012, which should bode well for on-going growth trends in 2013. Whether we see this uplift in New Zealand remains to be seen, given the domestic PSI has shown patchy growth for a number of months.”

BNZ senior economist Craig Ebert says the most positive message to take from the December results is in the jobs growth area.

“The PSI staffing index is decently above the line. When combined with other pointers to jobs across the economy, we have good reason to believe employment growth is in the throes of picking up, perhaps to as much as 2% for 2013 as a whole. This would amount to an addition of about 45,000 jobs.”

The seasonally adjusted BNZ – BusinessNZ Performance of Composite Index or PCI (which combines the PMI and PSI) for December continued to show the two options for measuring the PCI in expansion, although again at a lower level than the previous month. The GDP-Weighted Index (51.0) decreased 1.3 points from November, while the Free-Weighted Index (50.5) fell 0.9 points over the same period. The fall-back in service sector activity, combined with an uninspiring manufacturing result, meant results for both indices edged closer to the no change mark of 50.0.

Three of the five main sub-indices were in expansion during December, with new orders/business (55.4) again leading the way despite another drop from the previous month. Activity/sales (51.6) also continued to fall back to levels seen around mid-2012. In contrast, employment (51.6) picked up slightly from November’s flat result, while stocks/inventories (49.3) dipped below the 50.0 mark for the first time since January (albeit being in a tight band of activity for the previous 10 months). Supplier deliveries (47.6) also fell into contraction after two consecutive months in expansion.

Two of the four regions remained in expansion during December. In the North Island, the Northern region (53.7) fell back from consecutive strong results to a level of activity last experienced in September. The Central region (48.6) fell back into a similar level of contraction seen in Sept-Oct as activity/sales and new orders/business decreased over December. In the South Island, the Canterbury/Westland region (47.1) recovered somewhat after a sharp fall in November, while the Otago/Southland region (53.4) returned to similar levels of activity seen in October.