Cause for cheer as service sector index leaps

BusinessNZ chief executive Phil O'Reilly.
BusinessNZ chief executive Phil O'Reilly.

A survey showing the service sector came to life in October has pleasantly surprised commentators, both because of the extent of the rise and because it follows a slew of negative data.

The BNZ-Business New Zealand Performance of Service Index (PSI) leapt to 57.4 last month, up a "staggering" 7.5 points on September and the highest result since November 2011.

It puts the survey back into positive territory, with a figure above 50 indicating the sector is expanding and under 50 showing it is shrinking. It is also the biggest monthly increase since the survey began in 2007.

BNZ head of research Stephen Toplis said economists had become concerned by negative numbers in recent weeks, not least a jump in the unemployment rate to 7.3 per cent. Equally the PSI for October was a strong result. "If other data had been different we would see this as being consistent with robust expansion."

The economy appeared to fall into a hole in the September quarter, Toplis said.

However, the current quarter seemed to be gaining momentum.

Some of the explanation for the October rise in the PSI was in the regions.

"Auckland and Christchurch are picking up a bit of a head of steam, while Wellington continues to flatline."

Confidence in Auckland was being boosted by the pick-up in the property market, while the rebuild in Christchurch was slowly starting to get under way, he said.

New Zealand was still facing huge headwinds from the global economic situation, Toplis said. If economic conditions were normal "you would be seeing a country growing at breakneck speed".

BNZ said one month of data did not make a trend, but coupled with a stronger PMI (Performance of Manufacturing Index) reading "there is a strong suggestion that the New Zealand economy is bouncing back relatively aggressively from a moribund September quarter".

BusinessNZ chief executive Phil O'Reilly said there were reasons to cheer. "Both activity/sales and new orders/business were either struggling or heading in the wrong direction in recent months, so a strong turnaround for both to lift the overall result has come at the right time."

Comments from respondents also provided a telling story - 62 per cent of comments were positive, O'Reilly said.

The Southland Times