The pace of growth in New Zealand's services sector slowed in May, although a steady stream of inbound migration continues to stoke demand.

The BNZ-BusinessNZ performance of services index fell 0.9 of an index point to a seasonally adjusted 56.9 last month, with all five sub-indices holding above a reading of 50, which separates contraction from expansion.

"Today's performance of services index for May suggests robust growth has continued into the heart of the second quarter," BNZ senior economist Doug Steel said in his report.

"New Zealand's current economic expansion is being underpinned by a rising population and booming tourism. With labour demand also buoyant, it is all helping lift sales activity, including across the service sectors."


Government data last week showed gross domestic product grew at a faster than expected pace of 0.7 per cent in the March quarter, owing largely to an increasing population fuelled by record levels of net migration.

Steel said tourist spending along with good returns from forestry, beef, kiwifruit, apples and wine are helping offset the extreme weakness in dairy, meaning New Zealand's external deficit has remained smaller than usual.

The PSI comes after its sister survey showed manufacturing continued to firm in May as production surged and employment expanded.

The composite index, which combines the two measures, decreased 0.8 to 56.9 on a GDP-weighted basis and edged up 0.1 to 57.4 on a free-weighted basis.

Employment was the only sub-index to improve in May, up 0.7 to 54.5, above its long-term average of 51.3. Combined with last week's manufacturing survey, Steel said overall labour demand looked buoyant and fitted the bank's forecasts for decent employment growth and a marginally lower unemployment rate in the second quarter.

Activity/sales fell 2.6 points to 63.2 and new orders/business was down 1.3 points to 60.1, though Steel said both had remained "particularly strong" as their index levels were above 60.

Supplier deliveries dropped 2.2 points to 52.1, while stocks/inventories dipped 0.1 of a point to 52.3.