Services sector index drops to lowest level outside Covid lockdowns

Activity in the country’s services sector has slumped to its lowest level outside the Covid lockdowns.

The BNZ-Business New Zealand Performance of Services Index (PSI) fell 3.6 points in May to 43.0 — a reading below 50 indicated the sector was contracting.

It was the lowest reading since the August 2021 lockdown and the weakest level excluding the 2021 and 2020 lockdowns.

Activity and sales were the weakest amongst key indicators, with levels significantly below the long-term average, while new orders also fell sharply, indicating a strong drop-off in demand.

BusinessNZ chief executive Kirk Hope said the May result was “as bad as it can get” for the sector, with contraction levels greater than those during the Global Financial Crisis of 2008/09.

BNZ senior economist Doug Steel said the speed of the decline was “as worrisome as its size over the past three months”.

“There is weak and then there is very weak. Overall, this tells of a services sector in reverse, at pace,” Steel said.

Most service industries retreated according to the survey, with retail the weakest of them all and recording its lowest May PSI result.

Steel said it suggested downside risks to second-quarter economic growth numbers (first-quarter data would be released this week).

“Combining the very weak PSI with last week’s soft PMI (Performance of Manufacturing Index) yields a composite index that points to GDP falling by more than many might care to believe.

“Even if this week’s Q1 GDP figures manage something near zero as we think on an annual basis, the PSI and PMI indicators suggest a larger negative than we already anticipate for Q2.”