Service sector activity eases in August but still expanding

Activity in the services sector eased marginally in August but continues to expand.

The BNZ-BusinessNZ performance of services index fell 0.2 points from July to a seasonally adjusted 54.6 and was 1.3 points higher than August 2018. The long-term average is 54.4 and a reading above 50 indicates expansion.

The index continues to “rumble along at a trend-like pace” and the “component detail did little to disabuse the sense of robustness," said Bank of New Zealand senior economist Craig Ebert.

Activity and sales eased to 56.1 from 57.3, while the employment measure rose to 53.4 from 52. New orders/business fell to 56.8 from 58.4 while stock/inventories were at 53.6 from 54.4. Supplier deliveries lifted to 51.6 from 48.9.

Ebert said the firmness in the PSI of late is all the more important, given the contraction in its sister survey the Performance of Manufacturing Index.

The latest PMI data showed the sector contracted for a second month in August as new orders hit their lowest level in more than 10 years.

The PMI lifted 0.3 of a point to 48.4 from July but remained below the 50 level that separates expansion from contraction.

Ebert said the split between the two is “a happening thing globally. This is consistent with the policy-driven disruptions to international trade flows, with business investment decision-making also affected in the bargain,” he said.

On the flip side, household sectors across the developed world appear broadly robust, underpinned by solid, even tight, labour markets, he said.

Combining the two surveys, the composite index eased 0.2 points from July to 54 on a GDP-weighted basis. On a free-weighted basis, the measure fell 0.2 of a point to 51.9.

The “relatively robust” PSI adds to Ebert’s view the economy expanded 0.3 percent in the second quarter, largely helped by the services sector.

“We don’t believe the services sector is giving up the ghost. The PSI backs this up. Then again, it is important that this continues to offset the tough times the manufacturing sector is getting mired in,” he said.

(BusinessDesk)

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