Stability in services sector welcomed

Four months of relative stability in the region's services sector was yesterday welcomed by Otago-Southland Employers Association chief executive John Scandrett.

The BNZ-Business New Zealand performance of services index (PSI) showed Otago-Southland at 55.7 in February, down slightly from the January reading of 59.

A reading above 50 indicates expansion in the sector and below 50 shows contractions.

Otago-Southland was 54.4 in December and 59.4 in November.

Mr Scandrett said that, importantly, the region was showing some "real stability" in its results.

"For the last four months, the local survey outcomes have demonstrated a strong expansionary theme across service sector activity.

"In our region, we received strong feedback on cruise ship and tourist activity and linked that to an accommodation sector uplift.

"It was also pleasing to note positive comment come forward relevant to property inquiries increasing and to construction services confirming more activity," he said.

The national February reading was 53.6, 0.6 points up on the January result.

The new orders index continued to lead the way at a healthy 58.9, up 1.8 points from January.

BNZ economist Doug Steel said that was encouraging for the durability of the service sector expansion in coming months and for the wider recovery, given the sector made up about two-thirds of the economy.

Expansion was not uniform across all industries within the service sector.

Health and community services stood out on the positive side while retail trade and transport were the under-performers - both dipping below 50 in February, he said.

The weakness in retail trade followed solid months in December and January and could simply reflect a pullback from the Christmas and New Year sales period.

With only a one-month dip, it was hardly a trend but it did tie in with weaker looking indicators for retail sales published on Friday, Mr Steel said.

While the main indicators were in positive territory in the February survey, there was a hint of a plateau developing over recent months.

The movements across all sub indices between January and February were well within the usual monthly volatility.

Even back to November, movements had been within relatively tight ranges.

"While service sector activity continues to expand, the acceleration we saw through the mid-to-latter part of 2009 may be tapering off.

"This would tie in with our view that the economy as a whole likely accelerated in the fourth quarter last year and maintained, rather than added to, this momentum into the new year."