Services sector 'going nuts'

JAMES WEIR
Last updated 12:09 17/02/2014

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The services sector is expanding at its fastest trot for seven years, with the pace nudged up even more in January as new orders "went nuts" in the new year.

The pace of expansion in the services and manufacturing sectors suggested economic growth of about 4 per cent this year.

The latest BNZ Business NZ Performances of Services Index was 58.1 points in January, up half a point from December, to its highest level since late 2007.

An index above 50 indicates the sector is expanding and below 50 it is declining.

In the last 6 months, the PSI has averaged 56.5.

"New orders are going nuts in New Zealand's services sector," BNZ senior economist Craig Ebert said.

"This suggests people have not only come back from holidays full of confidence, but are now making things happen."

The increasingly strongest element of new orders hit a seasonally adjusted index of 66.1.

The surge in new orders came as inventories were slimming down "at a rate of knots".

"In short, service sector firms look to be caught short on this account," BNZ said.

The stocks variable in January staggered to a seasonally adjusted 45.6 on the index.

That was the lowest since the global financial crisis in 2009. But far from signalling another time of distress the latest shrivelling in inventory clearly signalled a surprisingly strong upswing in demand, BNZ said.

Production is running faster to keep up. The PSI activity/sales reading for January jumped to 63.2, from 60.1 in December. This was even speedier than the production index of January's Performance of Manufacturing Index, which was strong itself at 59.5. Together they continue to suggest strong GDP growth is upon us - probably above 4 per cent annually.

That was a sign of how forceful New Zealand's economic momentum was becoming, with other surveys suggesting GDP growth closer to 5 per cent or even 6 per cent, BNZ said.

BusinessNZ chief executive Phil O'Reilly said that the positive start to the year was built on expansion levels not seen for several years.

"In addition to the overall index at a seven-year high, the key subindices of new orders/business and activity/sales were also the highest since 2007.

"With positive comments coming from over two-thirds of respondents during January, this augurs well for continued expansion in the months ahead."

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- Fairfax Media

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