Strong July for NZ services sector

The June PSI is 'maybe not a gold medal performance, but surely a solid silver," said Doug Steel, economist at Bank of New Zealand. Photo / Thinkstock

New Zealand's services sector registered its highest level of activity since October 2012 in July, led by new orders and strength in the northern region.

The BNZ-Business New Zealand Performance of Services Index rose to 58.1 last month, up three points from June and from 52.2 in July last year. It is the highest reading for July compared to a year earlier since the survey began in 2007. A reading above 50 indicates expansion in activity.

The PSI follows the release last week of its sister survey, the performance of manufacturing index, which rose to a nine-year high in July, with production and new orders leading the charge.

"Combined they point to GDP growth quickening to quite a strong pace," said Craig Ebert, economist at Bank of New Zealand.

BNZ will be revising up its GDP growth view for the third and fourth quarters "quick smart", he said.

The bank is currently predicting a 0.7 per cent expansion in the third quarter and 1 per cent expansion in the fourth quarter.

Ebert said the PSI and PMI measures have tended to under-represent what has come through in GDP growth of late whereas other surveys have over-predicted the economic recovery.

The new orders index rose to 63.1, up 3.2 points from June and is the highest level since November 2007.

Of the other three main diffusion indexes, employment rose 2.1 points to 52.2 after a fall in June, stocks/inventories rose to 54.9 and supplier deliveries rose to 57.3, its highest value since May 2007.

On a regional breakdown, the Northern region led the way with a reading of 62.6, the highest since November 2007, while the Central region declined slightly to 50.5.

The Canterbury/Westland region recorded a slight contraction at 48.4 and Otago/Southland recorded 52.3, a gain after a dip in June.

The combined manufacturing and services index, the BNZ-BusinessNZ Performance of Composite Index improved significantly last month. The GDP-Weighted Index rose 3.1 points to 58.3 and the Free-Weighted Index rose 3.7 points to 59.1.