Service sector survey shows rise in activity

A survey of activity in the services sector rose in December, with a big lift recorded in the retail industry.

The BNZ-BusinessNZ performance of service index was at a seasonally adjusted 52.5 last month, up 0.8 points from November. A reading above 50 indicating services activity is expanding while a reading below 50 indicates it is contracting.

The new orders/business sub-index continued to improve to 56.8, with activity/sales at 56.3, while stocks/inventories remained in the 50-point range for a fourth consecutive month at 50.9, and employment stayed in the 49-point range for a third consecutive month at 49.4. Supplier deliveries at 48.7 was in contraction for a second consecutive month.

BNZ economist Doug Steel said the retail trade had a reading of 56.9 for last month, a big lift from the 46.3 recorded in November.

That suggested confidence in the retail sector was not as bleak as might be expected given recent weakness in consumer spending, Mr Steel said today.

Including accommodation, cafes and restaurants, retailing accounted for about 10 percent of service sector activity, 19 percent of service sector employment, and 15 percent of economy-wide employment.

While consumers were not aggressively opening their wallets now, they were slowly but surely getting into a better position for the future, Mr Steel said.

"This can only be a good thing for longer term and sustainable growth in the economy and in the retail sector."

But he warned that despite reasons for positive sales growth ahead, strong headwinds remained, including the soft property market and associated reduced appetite for debt.

BusinessNZ chief executive Phil O'Reilly said that while it would have been good to see the service sector end 2010 more strongly, there were still positives in what continued to be a difficult environment for many businesses.

"Throughout 2010 the sector has remained in expansion, compared with seven of 12 months in contraction for 2009," Mr O'Reilly said.

"Also, new orders/businesses continue to exhibit healthy results, which will hopefully translate into further sales in the months ahead. Globally, the service sector is reaching activity levels not seen since 2007, which should provide further momentum towards a recovery and sustained growth."