The service sector recovery gathered pace in August as the BNZ Capital – Business NZ Performance of Services Index (PSI) recorded the first consecutive monthly expansion in 2009.

The PSI for August stood at 51.3, which was 1.2 points up from July when the index scraped above the 50-point dividing line that signifies whether the sector is expanding or contracting.

It was 3.4 points up from August 2008 but still 8.1 points down from 2007 when the PSI averaged 58.1 for the year.

In 2008 this dropped to 49.1; so far in 2009 the average has been 46.6.

Business NZ chief executive Phil O’Reilly said the results were positive for two reasons: firstly, the historic low point of 43.7 in April now looked well and truly over as new orders/business had been particularly strong in August.

“Second, the New Zealand result is mirroring offshore developments, with the JP Morgan global PSI for August (50.5) showing expansion for the first time since May 2008,” he said.

“Part of this global recovery has also come from a significant improvement in new orders and activity/sales.”

BNZ Capital Head of Research Stephen Toplis said the services sector has stayed positive thanks to “a jump in dairy prices, and active Government and heaps of Aussies” coming to our shores for winter holidays.

He added that “the data come with a health warning that hard evidence of a recovery is now going to be needed to keep confidence headed in the right direction”.

However, he said he believes “the recession is done and dusted, that activity levels have now stabilised, and a genuine pick up is set in place for calendar 2010.

“The PSI is mimicking other indices in suggesting that even the laggard labour market is starting to show signs of life.

“Added to this, August saw the first serious recorded jump in dairy commodity prices after a long string of heartbreaking falls,” he said.

Only two of the five sub-indices showed expansion during August but crucially, new orders/business was at 57.6, its highest point since February 2008.

Activity/sales was still in positive territory at 50.5 but fell 1.2 points from the previous month.

Employment reached its highest point since November 2008 but was still in contraction at 49.3.

All four regions showed expansion in August; Otago/Southland showed the strongest growth at 58.0 while Northern was the weakest, dropping back one point to 50.2.