NZ service sector growth surges in May

Strong service sector growth in May was led by rapid expansion in new orders. Photo / Thinkstock

New Zealand's service sector growth eclipsed Australia in May as rapid expansion in new orders underpinned the second-fastest monthly pace since at least April 2007.

The BNZ-BusinessNZ performance of services index (PSI) increased 0.1 points to 56.8 last month from April, where a reading above 50 indicates expansion. That's the second-fastest monthly pace since the series began in April 2007.

"A strong upward trend has developed in the PSI, to the point of it now suggesting stronger than average growth in by far the bulkiest part of the economy," BNZ economist Craig Ebert said in his report.

"This is yet another example of something that looks as strong in New Zealand as it does weak in Australia."

Service industries made up 71 per cent of New Zealand's $135.04 billion gross domestic product in the 2001 March year, according to government figures. Services grew 0.7 per cent to $24.54 billion in the three months ended December 31, outpacing quarterly GDP growth of 0.3 per cent.

New orders was the fastest growing sub-index in May, up 2.6 points to 63.1, followed by activity/sales which rose 2.2 points to 58.3 and supplier delivers up 0.7 points to 55.4.

Employment dropped 4.4 points to 50.7, remaining in expansionary territory, while stocks/inventories declined 1.5 points to 52.3.

Ebert said the survey "suggests business activity and expectations are holding up far better than general economic confidence".

The GDP-weighted performance of composite index, which combines the manufacturing and services indices, rose 1.1 points to 56.7.

"Bolt the PSI on to the much-recovered PMI of May and one gets the impression NZ GDP could be a corker in Q2," Ebert said.

The survey comes ahead of the official first-quarter gross domestic product figures on Thursday, which are expected to show the economy grew 0.5 per cent in the first three months of the year.