NZ service sector activity rises to 13-month high in August

Monday 14th September 2015

Activity in New Zealand's services sector, which accounts for about two-thirds of the economy, expanded in August, after two months of little movement, rising to the highest level in 13 months.

The BNZ-BusinessNZ performance of service index rose 1.6 points to 58.2, the highest reading since July last year. The index, where a reading below 50 indicates the sector is in contraction, has been in expansion since October 2009.

The PSI follows an improvement in its sister measure, the performance of manufacturing index, last week which rose 1.3 points in August to a reading of 55. The composite index, which combines the manufacturing and services index, rose last month, with the free-weighted index up 1.4 points to 57.1 while the GDP weighted index increased 1.7 points to 57.8.

The measures come ahead of second quarter gross domestic product figures due this week, which are expected to paint a mixed outlook for the New Zealand economy. Growth bounced back in the second quarter as one-off factors dented growth in the first three months of 2015 wash through, but the recovery masks weaker underlying growth, reflecting the impact of low dairy prices, falling business investment and subdued trading partner demand.

"Along with the PMI - which also increased in August, to a solid level - the PSI thus paints a picture of an economy growing at a rate much better than normal," BNZ economist Craig Ebert said in a note. "This is not to deny the headwinds that face the economy. However, we also need to acknowledge that growth in the current (September) quarter could well be shaping up as strong."

Last week, the Reserve Bank lowered its assessment of the economy, saying annual growth was about 2 percent, down from its July estimate of 2.5 percent, and cutting its projections for quarterly GDP through to the third quarter of 2016. But the central bank pointed to bright spots in the economy, where low interest rates, high net migration, a robust housing market and globally low oil prices, which will support consumption.

BNZ's Ebert also pointed to an expected uptick in consumer spending in the third quarter, which will bolster economic growth.

Today's PSI figures show all sub-indices gained, with new orders/business rising to 64.5 in August from 60.5 the previous month. Activity/sales climbed 1.2 points to 61.7, employment increased 0.9 points to 54.4, stocks/inventories gained 0.8 points to 51.9, and supplier deliveries increased 0.5 points to 54.7.

BusinessDesk.co.nz

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