The service sector continues to struggle in tough economic conditions, according to the BNZ – BusinessNZ Performance of Services Index (PSI).

The PSI for October stood at 48.7, up 1.8 points from September and staying within the 47-49 value range which has dominated results this year. In addition, the October result was 9.7 points down from the same month last year.

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 since the survey began is 53.5.

BusinessNZ chief executive Phil O’Reilly said despite the slight improvement in the October result compared with September, the main index values since April have remained in negative territory and well off the pace of results during the same period in 2007.

“While Australia’s service sector seems to be experiencing a worse downturn in activity than us, other countries are finding themselves in a similar situation to New Zealand, with lacklustre activity,” he said.

Mr O’Reilly said consumer and business confidence was taking a battering, with comments involving deteriorating economic conditions coming through strongly from respondents. Competition for new or even existing customers was increasingly tight, with some businesses quoting substantially less to ensure work continues for the rest of the year and into 2009.

“On the flip side, improving weather conditions have provided a boost for some firms, while there are some who are enjoying greater levels of activity as their competitors are forced to wind up their business.”

Bank of New Zealand head of research Stephen Toplis said there was more pain to come with the next leg of the downturn likely to be led by a sharp contraction in investment activity and a significant increase in the unemployment rate.

“While this is a far from inspiring environment, the good news is that the economy’s automatic stabilisers are swinging into action. These will not only provide some short term relief but will also start the wheels turning that will eventually see an end to this downturn.”

Only two of the five diffusion indices that make up the PSI exhibited contraction during October. However, these two involved the key indices of activity/sales (46.8) and employment (47.1), which dragged the overall index down. New orders/business (50.0) recovered from its minor contraction in September to show no change for the current month, while deliveries (50.2) also recovered from September. Stocks/inventories (52.0) experienced a minor drop, but still in expansion.

Activity by region continued to show a similar pattern to previous months. The Northern region (48.4) improved slightly, with its highest result since May. The Central region (55.4) recovered to levels experienced in August, and has shown the strongest growth of any region over the last four months. In the South Island, the Canterbury/Westland region (52.3) continued to build on its September result, while the Otago/Southland region (37.7) remained entrenched with a value below 40.

Click here to view the October PSI & PCI
Click here to view the PSI time series data
Click here to view the PCI time series data

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