Expansion in services slows

The strong tourism sector is continuing to drive economic activity.

New Zealand's services sector, which accounts for about two-thirds of the economy, slowed in July to its lowest point in 20 months, ending a run of above-average expansion.

The BNZ-BusinessNZ performance of services index fell 2.4 index points to a seasonally adjusted 54.2 last month, with all five sub-indices dropping. That's the lowest reading since November 2014, and in line with the long-run average for the survey of 54.2.

A reading of 50 separates contraction from expansion.

"Service sector growth seems to have slowed a bit from its recent strong run," BNZ senior economist Doug Steel said in his report.

"It is something to note. But at this stage, it's only one slower month and may be as much related to the erratic weather as anything else," Steel said.

"In any case, we are not talking slow growth. The PSI employment index remains firmly above average, indicating the sector retains a firm degree of confidence."

The PSI comes after its sister survey, the performance of manufacturing index, fell 1.8 points to a seasonally adjusted 55.8 as the country's booming construction sector continued to support industrial production.

The composite index, which combines the two measures, dropped 2.4 points to 54.5 on a GDP-weighted basis and fell 1.8 points to 55.4 on a free-weighted basis.

Steel said the combined indices "suggest the economy is expanding at a rate around, or slightly above, trend. In numbers, this infers annual GDP (gross domestic product) growth circa 3 per cent".

The Reserve Bank last week forecast annual GDP growth of 2.5 per cent was likely to accelerate to 3.4 per cent in the 2017 and 2018 March years as the country's strong construction and tourism sectors continued to drive economic activity.

Yesterday's survey showed supplier deliveries recorded the biggest decline among the sub-indices, down 6.5 points to 48.4 in the month. Stocks/inventories dropped 2.1 points to 51.1 and employment declined 1 point to 53.8.