Surge of activity in service sector

Activity in the southern service sector has surged, with Otago and Southland firmly expanding during January,boosted by domestic tourism and rebuilding work in Christchurch.

South Island activity overall outperformed that of the North Island, according to the BNZ Business New Zealand performance of service index (PSI) which was released yesterday.

A PSI reading above 50 indicates expansion, and below 50, contraction in activity.

Both the Northern and Central regions in the North Island declined in activity, respectively 49.7 and 47.7, while Canterbury-Westland and Otago-Southland gained, at 64.5 and 63.2. Nationally the index stood at 53.6.

Otago Southland Employers' Association chief executive John Scandrett said since the February 2011 earthquake in Christchurch, there had been some "very lean" service sector performances.

"These extended right across the southern region and served to severely dent the Otago and Southland retail, accommodation, hospitality and tourism activity levels," he said in a statement yesterday.

Otago and Southland's PSI results in November scored 60.8 but declined in December to 50.5 before the swing to January's 63.2.

"[However] I think a fairdollop of caution is still required as we assess theJanuary result and subsequent forward surveys, but current feedback is positive within some wholesale trading and construction sub-sectors," Mr Scandrett said.

BNZ economist Doug Steel said the main driver in improvement came from the retail sector, with the overall service sector posting "reasonable growth" and a "a hint of acceleration creeping in"; the latter due to improving employment in the sector.

"Service sector firms seem to be gearing up for stronger growth ahead. Healthy looking new orders are no doubt part of this," Mr Steel said in a statement yesterday.

Mr Scandrett said it appeared that limited numbers of local construction operators were becoming involved in the rebuilding of Christchurch but there were clearly others who had yet to secure new work there.

Mr Scandrett said responses from the tourism market had become more buoyant, even if the expansion seen was quite clearly confined to domestic tourist activity, rather than a lift in offshore visitor numbers.

"Looking into the January survey sub-indices we can be heartened by strong improvements in general activity/sales levels and where new business is being signed," he said.

Mr Scandrett also highlighted that the southern employment sub-index was "in good shape" with the December quarter local unemployment figures of 5.1% in Southland and 4.8% in Otago, compared with the national level of 6.3%.

"So it is once again positive to see us in this part of the country working off more favourable base levels," Mr Scandrett said.

- simon.hartley@odt.co.nz