Service sector continues golden five-month run

"The trend is your friend," says BNZ, after the service sector expanded for a fifth straight month in June.

The economic horizon looks rosier almost every day: confidence is on the rise, GDP blew all expectations out of the water, and now the services sector is the latest to continue the trend.

According to the BNZ–BusinessNZ Performance of Services Index (PSI), the sector is on a roll, up for the fifth month in a row. PSI for June was 54.7, up 1.7 points from May and the highest result since September 2010.

A PSI reading above 50 indicates that the service sector is generally expanding; the average PSI value for 2009 was 48.8, while for 2010 it was 53.2.

BusinessNZ chief executive Phil O’Reilly says the June result represents another step in getting the service sector back on track after a rocky three years.

“Looking at results from the start of 2011 shows a consistent lift every month in expansion. The June result in particular has been boosted by levels of expansion for activity/sales, new orders/business and stocks/inventories not seen for a while.

"Adding into the mix further earthquake related recovery work and the Webb Ellis trophy up for grabs in a few months’ time should mean additional boosts to activity.”

Four of the five sub-indices grew last month, with new orders (58.0) recording the highest result since June 2010, while activity/sales (57.7) produced its best result since March 2010. Employment (51.6) recovered slightly after a dip in May, while stocks/inventories (53.9) recorded its highest result since November 2007. Although supplier deliveries (50.0) fell 0.4 points it represented no change for the current month.

“The financial market’s saying of ‘the trend is your friend’ definitely applies to the New Zealand economy right now,” says BNZ senior economist, Craig Ebert. “Indeed, the tendency has been congenial for a good while now."

The Canterbury/Westland region (59.2) led the way in terms of activity, but was influenced by a lack of supply of functioning service businesses in Christchurch. The northern region (52.1) was unchanged from May, while the central region (55.6) slipped 1 point. The Otago/Southland region (44.1) improved on its May result, although remains in contraction for the sixth consecutive month.

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