Christmas shows strong service sector performance

Activity in the New Zealand service sector continues to show solid activity with the highest recorded December in the last two years, a study suggests.

The BNZ Capital -- Business NZ Performance of Services Index (PSI) shows December 2009 standing at 54.4 points. Though it is a slight drop by 1.6 points compared to November, it is the highest level of activity since the survey began in 2007.

A score of 50 or more indicates growth in the sector; under 50 means its declining.

The average PSI for 2009 was 48.8, 49.1 in 2008 and 58.1 in 2007.

Business NZ chief executive Phil O'Reilly said that although 2009 had the lowest PSI score compared to other years, the last half of the year had shown a positive trend.

"The last two months in particular show a better spring in the step for the service sector. Although there are seasonal factors at work which tend to produce stronger results at this time of year, the fact that the two critical sub-indices of activity/sales and new orders/business remain healthy should help fuel overall activity levels into the start of 2010," he said.

"In addition, the number of positive comments from respondents continues to build momentum, `with cautious optimism' and `confidence' creeping back into the vocabulary of various businesses."

BNZ senior economist Craig Ebert said despite positive reports for both November and December, there were still many reasons to remain wary on the outlook for consumer spending.

"There's a good chance the market could read too much into this as there are other factors at play," he said. "Thanks to the strong currency exchange against the countries New Zealand imports its retail goods from, consumers have been enjoying reduced prices as retailers compete for trade.

"Another factor to consider is the housing market. While house prices have been rising since mid-2009, sales have been falling noticeably in seasonally adjusted terms. This gives us reason to remain a little wary, and we'll be keeping a close watch on the various housing reports over the coming months."

The two main contributors to expansion during the last Christmas season were activity/sales with 55.1 points and new orders/business with 60 points. Employment remained almost unchanged with 51.1, as did stocks/inventories with 50.3. Deliveries fell 2.3 points to 52.0.

The Central region's service sector led the way with its highest result since 2007 with 60.9 points, followed by Canterbury/Westland region with 56.1. Otago/Southland fell from its top slot with 54.4 points, while the Northern region stood at 52.5 points.