Weather slows service sector activity

Service sector activity softened last month with businesses saying wild weather played a role, a survey shows.

The BNZ-Business NZ performance of services index (PSI) was at 5.3 in May, down 0.56 points from April, but up 5.2 points compared to May 2009.

It was the seventh consecutive month of expansion and the result was also the highest May figure since 2007.

A PSI reading above 50 indicates the service sector is generally expanding.

The average PSI for 2008 was 49.1 and in 2009 it was 48.8. The average score for 2010 is 54.4.

BusinessNZ chief executive Phil O'Reilly said any hope of stronger expansion in May after the dip in April was always going to be difficult given recent weather conditions.

"Weather is often a double edged sword for the service sector, as some businesses depend on fine weather while others enjoy better trading during winter.

"However, on balance the strong concentration of negative comments from respondents show the wild and wet conditions during May led to a less than ideal month for day-to-day activity for many."

The service sector showed varied results with property and business displaying strong growth at 59.1 and retail trade picking up from April with 57.5.

But on the other end, accommodation, cafes and restaurants fell from 41.4 in April to 39.4 in May, while transport and storage remained in decline, but recovered slightly from April at 41.7.

Bank of New Zealand Economist Doug Steel said May's result had an air of growth consolidation. This was apparent as its results equalled the PSI average of the last seven months, he said.

"A growth consolidation theme is also consistent with the mix of results in the detail of May's PSI. Sales have risen and new orders have fallen a little, but these indices are now close to each other, indicative of growth at a sustainable level."

All five sub-indices were in expansion mode for the third consecutive month -- the first time since late 2007. Activities/sales rose 1.7 points from April, standing at 55.7, although new orders/business had its biggest dip since October 2009 at 55.7.

Employment slipped 3.6 points from April at 50.8, supplier deliveries returned to similar levels in January at 51.2, and stocks/investment fell, returning exactly to its March result of 50.9.

The Central region again led the way with 54.9, though lower than April's 56.4, followed by an improved Northern region with 52.4.

Both South island regions remained in contraction in Many, with the Canterbury/Westland region slipping to 44.7 and Otago/Southland falling slightly to 48.3.