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NZ service sector activity lifts in September but still below long-term average

Monday 15th October 2018

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Activity in New Zealand's services sector, which accounts for about two-thirds of the economy, increased slightly in September but remains below its long-term average.

The BNZ-Business New Zealand performance of services index lifted to 53.9 in September from 53.3 in August, still below the long-run average of 54.5. A reading of 50 separates expanding activity from contraction.

While the slight pick-up in expansion was welcome, the sub-index results still show some areas for concern, said BusinessNZ chief executive Kirk Hope. 

Among the services sub-indices, employment continued to shrink, falling to 49.4 from 49.9. All of the other sub-indices remained in expansionary territory. Activity/sales lifted to 56.1 from 53.9 while new orders/business slipped to 56.1 from 58.6. Stock/inventories rose to 53.8 from 52 while supplier deliveries were at 52.3 from 52.5. 

Kirk said new orders were at the lowest level since April 2017 and employment contracted to its lowest result since September 2012. He also noted that the proportion of positive comments in September dropped to 50.7 percent from 56 percent in August. 

Bank of New Zealand senior economist Craig Ebert said while the sector's rate of expansion has slowed over the past six months, it is showing signs of stabilising. 

"Generally speaking, the NZ PSI, much like the quarterly survey of business opinion, suggests the services industry is settling down into a trend-like pace. However, there is a risk Q3 could be a bit bumpy regarding output and employment," he said. 

This month, the New Zealand Institute of Economic Research's September quarterly survey of business opinion showed local firms were the most pessimistic in nine years. That included "pockets of caution in the services component ... although the sector's broader messages were of resilience," said Ebert. 

The PSI's sister survey, the performance of manufacturing index, fell 0.3 of a point to a seasonally adjusted 51.7 last month, below the long-term average of 53.4. 

The performance of composite index, which combines the PSI and PMI, rose 0.3 of a point to 53.6 on a GDP-weighted basis and slipped 0.2 of a point to 52.9 on a free-weighted basis.


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