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Can the service sector bounce back?

A subdued service sector is struggling to regain lost ground.

A subdued service sector is losing momentum and may struggle to climb back to 2010 levels, an industry report shows.

The BNZ - BusinessNZ Performance of Services Index (PSI) for December was 50.6. This was down 5.6 points from 56.2 in November, and 0.2 points lower than the October result.

A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining. The average PSI value over 2011 was 52.6. While this was better than the 48.8 recorded for 2009, it was lower than the 53.2 recorded for 2010.

BusinessNZ chief executive Phil O’Reilly said that like its sister survey the PMI, 2011 saw the PSI ending with more of a whimper than a bang, with the November result sandwiched between two lacklustre results.

“While the PSI has now remained in positive territory for 26 consecutive months, it has struggled to push any higher than moderate levels of expansion. The results for December and October indicate that the sector may struggle for stronger expansion in the near future."

BNZ senior economist Craig Ebert said the December PSI suggested a sense of ongoing progression, with the employment component remaining in expansion territory.

The Performance of Composite Index (PCI), which combines the results of both the PSI and PMI, returned to historical patterns with the two options for measuring the PCI (GDP weighted and free weighted) showing the exact same result of 50.7 and the sub-indices for both producing very similar values.

For the first time since August 2011, only three of the five sub-indices showed expansion in December. This was again led by new orders/business, followed by employment and stocks/inventories.

Activity/sales went into a decline for the first time since July 2010. Likewise, supplier deliveries contracted for the first time since March 2011.

Unadjusted activity was on the rise for all four main regions in December. The Canterbury/Westland region led the way, although it recorded its lowest level of expansion since July 2011.

The central region was close behind, while the northern region lost most of its gains in November.

Otago/Southland managed to just keep its head above water, despite falling 10.3 points from November.