NZ services sector contracts again, perceived recovery an "optical illusion"

New Zealand's services sector remained in contraction in March, with the BNZ-Business NZ Performance of Services Index (PSI) rising slightly for the second consecutive month to 47.1. An index score below 50 indicates contraction, while a score above 50 indicates expansion. However, despite the slight rise, BNZ economist Craig Ebert said that the 'recovery' in the index seemed to be a seasonal "optical illusion." Ebert drew attention to the latest Quarterly Survey of Business Opinion that showed the services sector was "clearly...going backwards at a fairly rapid rate of knots in the early stages of 2009, and even more so than was reported for the end of last year." "(W)e must say, we have our reservations (on the illusion of a recovery in the PSI in March). Much of the issue is that the PSI is not yet a long enough series to allow a reliable seasonal adjustment. So part of its less-negative look for February/March would seem to reflect the time of the year more than anything else," Ebert said. "Of course, we don't know this for sure. Only time will allow a statistically robust testing of this seasonal hypothesis. However, a quick cross-check of the PSI against the services component of the recent Quarterly Survey of Business Opinion (QSBO) bears out our suspicions about a "recovery" being nothing more than a mirage," he said. "So, we should be very careful about reading too much into the "recovery" that might seem implicit in the latest headline Performance of Services Index." "With evidence, instead, of widespread softening in the business sector, including services, there is increasing onus on the consumer and public sectors to drive the nation out of recession." "We're not confident of the household sector doing so "“ either soon, or forcefully "“ given the extent of labour market deterioration firms are warning about for the coming year or more."