Slumping service sector orders paint grim picture for 2009

The outlook for New Zealand's services sector grew darker as the BNZ-Business NZ Performance of Service Index (PSI) showed that new orders/business slumped to a record low of 45.9 in November, placing increasing pressure on future business activity and sales. The November PSI score of 47.3 showed that the services sector remained in contraction for the eighth consecutive month. A score below 50 indicates contraction, with one above 50 indicating expansion. The latest PSI result will put further pressure on the Reserve Bank to keep cutting the Official Cash Rate (OCR) in its attempt to stimulate the economy out of recession. The Reserve Bank is expected to cut the OCR to 4% or lower by mid 2009. Activity/sales fell from 46.8 in October to 45.7 in November as New Zealanders purchased less from the sector during the month. "In our experience, corporate New Zealand is, in aggregate, getting well and truly beaten up by a combination of reduced demand and margin pressure," BNZ Head of Research Stephen Toplis said. "This is why profits are under so much duress. Symptomatic of this, the aggregate price that producers are selling their goods may have risen 8.6% in the year to September, which seems an awful lot, but the costs of their inputs rose 13.6% over the same period. That's a big margin haircut," Toplis said. The index for new orders fell from 67.2 in November 2007, with activity/sales falling from 65.9. Employment (49.5) in the services sector continued to contract, although at a slower pace than in October (46.8). In August, the employment index reached as low as 41.2. Stocks/inventories remained stable at 51.1, while supplier deliveries contracted from October (50.2) to 46.6 in November. The Northern region continued to contract, with its second lowest result of 44.8 in November. Service sector activity in the Central region expanded slower than in October with a November score of 50.4 down from 55.4. The trend in Canterbury continued its rise from August, with a November score of 55.3 up from 52.3 in October. The PSI score for Otago/Southland improved dramatically from October (37.7), however the region remained in contraction with a score of 47.6.