SERVICES STRUGGLING

The monthly BNZ-BusinessNZ PSI figures for April once again signalled a contracting services sector, with "micro-businesses" (1-10 employees) particularly pulling the overall index down. Medium-large companies (51-100 employees) were actually showing growth in the month of April.

The PSI surveys businesses about the volume of business completed, orders they have in place, new business gained and recent staff level changes. Sales, stocks and inventories and supplier deliveries were all at their lowest points in the past 3 months.

Rising fuel prices affecting discretionary spending was the main reason given by respondents for weak business sales over the month, and BNZ's Head of Research Stephen Toplis commented, "Of particular concern to us is that the employment indicator remained below the breakeven mark for the 29th consecutive month. [...] Moreover, the length of time that reported hiring has been weak will help explain why the unemployed are remaining unemployed for an increasing length of time. As a benchmark note the duration of this employment downturn [is] relative to that which occurred during the GFC."

In his 20 May article on the findings, Liam Dann, the NZ Herald's Business Editor at Large, points out that the businesses in the services sector cover the "important stuff that makes the country functional and society a pleasant place to live." He goes on to say that, "As an economic indicator, the PSI essentially strips out the parts of the economy that have propped up gross domestic product (GDP) for the past three years." Without agriculture and manufacturing muddying the economic waters, the PSI can give a true impression of how hard the last 2-3 years have been for most franchises and related service businesses (smaller accounting and legal firms, franchise consultants and yes, even franchise-specialist media) which generally fall into the beleagured micro-business category.

As Liam Dann says, "None of this is very fun news, especially with the inflationary shock from high oil prices expected to flow through to food and other consumer goods in the coming months." 

The NZ Herald article can be read at https://www.nzherald.co.nz/business/economy/inside-economics-the-ugly-numbers-showing-why-auckland-has-been-in-recession-for-two-and-half-years/premium/LDWRPW3DNRA53I243UGWXWPKYY/ if you have a Premium level subscription.