The services sector - which makes up about two-thirds of our GDP - moved further into contraction in November, providing something of a bucket of cold water ahead of an expected bounce-back in GDP for the September quarter to be announced on Thursday this week.
The BNZ – BusinessNZ Performance of Services Index (PSI) for November showed that the services sector has now been in contraction for 21 consecutive months and it actually slipped backwards during the month, to its lowest level since May of this year.
The PSI for November was 46.9 (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). This was 1.5 points lower than October and also still well below the average of 52.8 over the history of the survey.
"The November result put to bed any immediate hope that the sector was heading somewhere towards expansion," BusinessNZ's CEO, Katherine Rich said.
"All five sub-index values were in contraction, with Activity/Sales (45.8) experiencing the greatest level of contraction for the current month. While New Orders/Business (49.3) still hovered just below the no change mark, Employment (46.4) also took a dip from October," she said.
Despite a stronger level of contraction during November, the proportion of negative comments for November (52.9%) was lower than October (54.1%) and September (58.0%).
"Negative comments received show the services sector overwhelmingly citing the weak economic environment, including low consumer confidence, high living costs, inflation, interest rates, and reduced spending, as the main factors affecting recent activity," Rich said.
The PSI, released on Monday, followed Friday's release of the BNZ – BusinessNZ Performance of Manufacturing Index (PMI), which showed the manufacturing sector is currently expanding, though at levels below the average seen in the survey.
BNZ's Senior Economist Doug Steel said after release of the PSI on Monday that "combined with the Performance of Manufacturing Index (PMI), the composite activity indicator poses downside risk to even modest growth expectations for early next year".
Steel said the BNZ economists expect September quarter GDP figures to show "a decent 0.9% q/q bounce", but he cautioned that the quarterly GDP figure "is likely to overstate the underlying pace of recovery".
"We noted way back in January that the economic recovery is unlikely to be in a straight line, and indicators will be choppy," Steel said.
"The PSI has been no exception, falling again after previously approaching the breakeven 50 mark. The PSI contrasts with some indicators showing recent growth in services. Last week’s selected services survey implied some sector growth in Q3, in particular for professional services. PSI weakness in November is a reminder that overall service sector conditions remain a far cry from normal."
2 Comments
This must hurt and is like nothing we've heard recently - "poses downside risk to even modest growth expectations for early next year" - 'even modest expectations'.
A NZ bank economist lands back in the real-world with a cold thud. A world where a falling OCR does not magically stimulate demand. Someone in the economy has to start spending more before we get economic recovery. I've made the same comment many times already.
"BNZ's Senior Economist Doug Steel said after release of the PSI on Monday that "combined with the Performance of Manufacturing Index (PMI), the composite activity indicator poses downside risk to even modest growth expectations for early next year"." Ouch.
So how are those recent upward revisions for Q3 Gdp forecasts looking.
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