Activity in New Zealand's services sector, which accounts for about two-thirds of the economy, rose in December, with strong growth in employment and new orders.

The BusinessNZ-BNZ performance of services index rose 0.3 points to 58.4 in December, above the long-term average of 54.1. Three of the five sub-indices rose, and all remained above the level of 50 that separates expanding activity from contraction.

Employment rose 1.7 points to 54, with supplier deliveries up 0.6 points to 56.8 and stocks/inventories rising 0.5 points to 52.6. New orders fell 1 point to 60.9, and activity/sales declined 0.8 points to 63.5.

"Unlike its PMI (performance of manufacturing index) cousin, the PSI's new orders/business index remained clearly above normal," Bank of New Zealand senior economist Craig Ebert said in his report. "This heralds sustained strong expansion in sales activity, which was already pumping in December."

Advertisement

Employment was the worst performer in November's PSI, with the suggestion firms were finding it difficult to employ qualified staff. Ebert said today's employment index lift, combined with the PMI employment index rising 2.5 points to 51.6 in December, was a good sign for the December quarter labour market reports due on February 1.

Ebert said the bank's economists had questions around the retail sector's fourth-quarter growth, with December's electronic card spending failing to bounce from November's dip.

"But we've since taken heart from the merchants' response to the QSBO, which were fine," Ebert said. "When we drill down into the PSI we see that its retail category still looks reasonably expansive. When we compare December retail PSI results, over many years, we get the impression of relative health for the final month of 2016."

The PMI last week showed manufacturing activity finished 2016 above its long-term average, unchanged in December from a month earlier. New Zealand's manufacturing sector had almost been in continuous expansion since October 2012, with the economy buoyed by a construction boom that started in the post-earthquakes Christchurch rebuild and has extended to Auckland's housing market.

The composite index, which marries the PSI and PMI, increased 0.7 points to 57.9 on a GDP-weighed basis and gained 0.3 points to 56.5 on a free-weighted basis.