The service sector remains in contraction, despite improved activity in February, according to the BNZ Capital – Business New Zealand Performance of Services Index.

The PSI for February was 46.3, an increase of 3.6 points from January, but still well below the critical 50-point mark that divides growth from contraction.

A PSI number below 50 indicates the service sector is generally declining; a number above 50 indicates it is generally expanding.

BNZ Capital senior economist Craig Ebert says the contraction was most pronounced in retail and hospitality – areas that depend on discretionary spending and are sensitive to the state of tourism.

“This suggests the service-based retail sector will remain under pressure for the near term,” he says.

The PSI has been in decline since 2007, when it averaged 58.1. Last year that was down to 49.1.

February’s survey marked the first time since the index began that all four main regions experienced a drop in activity.

Central (46.9) experienced only its second sub-50 result, while Northern (45.3), Canterbury/Westland (48.9) and (48.0) also witnessed shrinking service sectors during the month.

All five sub-indexes were below 50 as well, although they did make slight improvements from January.

Activity/sales rose from below 40 in January to record 42.9, employment rose 1.4 points to 44.9, new orders/business returned to its December score of 49.8, stocks/inventories rose to 48.3 and deliveries rose three points to 47.2.