Activity in the services sector has slumped to start the year, as smaller firms struggle more than their larger counterparts.
Cafes and restaurants are among the worst affected businesses, a performance index has found. Photo: 123RF
The BNZ-Business New Zealand Performance of Services Index (PSI) fell 3.9 points in January to 45.9, compared with 49.7 in December.
Any reading above 50 signals expansion, while anything below indicates contraction. The index has a long-run average of 53.6.
BNZ senior economist Craig Ebert said the result was not looking all that encouraging, as the service sector firms were showing signs of an economic rebound in the months following the resumption of Covid-19 restrictions in August 2021.
"In trying to fathom why the PSI is struggling as much as it is, the recent theme of smaller firms suffering more than larger firms has been reinforced by January's results.
"Small-to-medium-sized enterprises registered 39.1 while the biggest of businesses (based on staffing size) recorded a reasonable 55.4."
The employment, sales, new orders, inventory levels and supplier deliveries sub measures in the PSI all receded last month.
"The most disturbing principal component of January's PSI, however, was New Orders/Business," Ebert said.
"This tanked to 41.8, when its trend is 57.5.
"That's a bad look around bookings."
The results by sector found that accommodation, cafes and restaurants had fared the worst, as their index crashed to 17.9.
"This was not just weaker than December's already-poor print of 30.0 but matched the depths it got to as the country went into full lockdown back in April 2020," Ebert said.
The only consolation was that firms operating in the cultural and recreation sector held up 52.5, Ebert said.
Service sector activity was strongest in the Otago/Southland region at 49.8, followed by Canterbury, the lower North Island and Auckland.