Caution urged over latest service sector figures

The Otago-Southland services industry appeared to have had a major bounce in activity last month, but caution is being advised against reading too much into the latest figures.

 The BNZ-Business NZ performance in services index (PSI) shows the region moving from 44.7 points in November to 61 points in December.

Above 50 shows the industry expanding and below 50 that it is contracting.

Otago-Southland Employers Association chief executive John Scandrett said the seasonally-unadjusted survey results presented a moderate level of comfort on improved sector activity levels seen around the pre-Christmas training period.

Against the negativity evident in preceding months, the December movement to 61 points should be viewed cautiously, but in a positive light.

"While the 61-point outcome, on the face of things, presents solid evidence of an expansionary sector step, there is still a wide array of negative comment with the sales, new business and deliveries sub-indices.

"Ideally, we would like to thoroughly embrace the proposition that the services sector is now climbing away from the soft trading conditions evident through most of 2010.

"But we have on previous occasions been forcefully reminded that PSI volatility is the order of the day."

The national PSI rose to 52.5 points in December, from 51.7 in November and 52.5 in December 2009.

The northern region slipped to 54.7, central fell to 51.6 and Canterbury-Westland rose to 50.1.

The service index covers employment, stocks and inventories, new orders and new business, activity and sales and supplier deliveries.

Retailers are the large focus of the index but other areas include property and business services.

Westpac economist Doug Steel said retailers had experienced consumer spending restraint first-hand in recent years.

"Underlying restraint has extended to late 2010, judging by last week's retail sales data for November and the previously released dip in electronic card transactions in December.

"The latest data has continued the recent traits of consumer spending - volatile with underlying weakness."

Business surveys suggested some improvement ahead this year, he said.