Service sector keeps shrinking, but contraction slows in May

Falling car sales have hit the service sector hard.

The services sector continued to decline for a 14th consecutive month in May, but more slowly than in April.

The performance of services index (PSI), produced by BNZ Capital and Business NZ, rose 2.5 points from April to be at 46.2 last month. A reading below 50 indicates services activity is shrinking.

All indices that make up the PSI contracted in May, but most showed improvement from April.

Employment at 46.3 had its highest value since December, new orders/business recorded 49.7, stocks/inventories were 44.7, deliveries also 44.7, and activity/sales 43.9.

Among the service sectors, property and business services were at 54.6, showing expansion for the first time since last October.

BNZ senior economist Craig Ebert said the slump in car sales had hit the economy hard, despite having little impact on production.

Throughput had been lessened for the wholesale distribution sector, the vehicle retailing industry had been pruned, and the servicing and repairs business had slipped to some degree.

When auto categories were excluded, real retail sales fell 1.9 per cent in the year to March. When the auto categories were included the fall was 5.8 per cent.

"This highlights how instrumental collapsing expenditure on cars has been to the retail sector and its broad statistics," said Ebert.

It had crimped imports, which affected port activity and wholesale distribution networks down the chain.

But the rout might be near an end.

Net immigration was beginning to pick up to historical norms, and while vehicle upgrades could be deferred a year or three, anything longer started to wear thin.

- NZPA