Conflicting reports on strength of expansion

Winter tourism activities are likely to boost service industry growth. Photo supplied.
Winter tourism activities are likely to boost service industry growth. Photo supplied.

The Otago-Southland services industries remain buoyant but indications are emerging of slower economic activity in the sector than seen previously.

The BNZ-BusinessNZ Performance in Services Index (PSI) showed Otago-Southland on 56.1 points, down from 56.9 points in June last year.

Northern was on 52.8 points, Central on 58.3 and Canterbury-Westland on 52.3.

The New Zealand seasonally-adjusted reading was 54.7. A reading above 50 indicates expansion and the higher the reading, the stronger the activity.

Otago-Southland Employers Association chief executive John Scandrett said yesterday while services had been expanding in the region since May, there were still conflicting reports on the actual strength of activity experienced by operators in various sectors.

Some construction and related-industry parties had reported in positive terms on mild winter conditions and solid contract commitments driving workload lift.

But others in the same sector were not as buoyant. Across the tourism, retail and accommodation sectors there were numerous signals activity levels starting to move off the quieter shoulder-season period.

''With visitor number growth starting to track well, we can realistically anticipate continued expansion into the mainstream winter weeks,'' he said.

BNZ economist Doug Steel said many economic indicators had been going gangbusters during the past 12 months, pointing to strong growth.

More recently, there had been a few hinting at some degree of cooling but to levels still above average.

''This looks to be the case for the service sector, at least.''

The PSI moved higher to 54.7 in June from 54.1 in May.

But combined, those results were a reduction from the 56 to 58 level prevalent over the past year.

During the past year, there had been an occasional softer month, but it was immediately followed by a strong bounce, he said.

''It is notable there was not such strong bounce in June following the slow down in May. This is no cause for alarm.''

Although the PSI had been lower in the past couple of months, it remained above its long-term average, posting its 18th consecutive above-average monthly result.

A similar message was detected across the service sector indicators in the latest Quarterly Survey of Business Opinion, along with signs of the inevitable inflation consequences, Mr Steel said.

The issue ahead appeared to be in finding the appropriate staff.

Firms were already reporting more difficulty finding both skilled and unskilled staff, a natural precursor to higher wage costs - an important part of overall costs for many service industries.

''Without a significant lift in productivity, this will morph into generalised inflation pressures.''

There were already signs of that occurring with selling price increases becoming the most widespread since 2008, he said.

The consumer price index result tomorrow would be watched for any further indications of service sector pricing intentions increasing.

Higher price signals should not be a surprise.

It was what tended to happen when the economy grew above trend, as was currently the case, even if the growth had cooled slightly in recent months, Mr Steel said.

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