NZ services sector activity rises to 6-year high, led by new orders

Monday 18th November 2013

New Zealand's services sector, which accounts for almost two-thirds of the economy, accelerated to a six-year high in October, led by the strength of new orders and sales.

The BNZ-BusinessNZ performance of services index rose 1.8 points to 58.2 last month, following the highest September reading since the survey began in 2007. A reading above 50 indicates expansion in activity.

All five sub-indexes of the PSI were in expansion last month, with supplier deliveries the only measure to slow, falling 1.7 points to 51.4. New orders/business grew 1.7 points to 63 and activity/sales climbed 4.6 points to 60.9.

The survey follows the Performance of Manufacturing Index for October, released last week, which also recorded a strong level of activity, adding to signs of a broad-based recovery in the domestic economy.

The composite index, which combines the PMI and the PSI, rose 1.4 points to 57.1 on a gross domestic product-weighted basis, or 0.5 points to 56 on a free-weighted basis.

"Taken together, the latest PSI and PMI are further indication that GDP growth is picking up to an above-trend pace," said Bank of New Zealand senior economist Craig Ebert.

The longer the Reserve Bank keeps interest rates at a record low, "the bigger the risk that we run smack into the capacity constraints and inflation that we saw over the last cycle," he said. "The economy presently has little, if any, effective spare capacity to soak up. It won't take much growth to put the pressure back on."

In the latest PSI, the employment sub-index rose 1.3 points to 52.8 and stocks/inventories rose 3.2 points to 54.8.

The Northern region showed the strongest growth in activity, rising 3.5 points to 60.8, the highest reading since July. Central rose 0.7 points to 52.6 while Canterbury/Westland slipped back 0.7 points to 54.9 and Otago/Southland sank back into contraction at 46.8.

BusinessDesk.co.nz

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