The sector that accounts for two-thirds of the nation's economy has slowed to its lowest levels of expansion since December 2012.

The BNZ-BusinessNZ performance of services index (PSI) showed that activity in the services sector slowed across all major categories - a trend Bank of New Zealand senior economist Doug Steel finds more worrying than measures of business sentiment, which has also dropped to a seven-year low.

"While some have discounted weak business confidence readings of late, the PSI and PMI [manufacturing] results are not so easily dismissed as these are surveys of business outcomes not based on sentiment, outlooks, or expectations. In this sense, they are arguably more worrying from a growth perspective," Steel said in a note.

New Zealand's PSI for June was 52.8, which was 4.3 points lower than the May reading. A PSI reading above 50 indicates that the service sector is generally expanding; below 50 that it is contracting. The last time it fell below 50 was July 2010.


All five PSI sub-indices fell in the month, with activity/sales dropping 3.2 points to 54.7, and supplier deliveries down 4.8 points to 48.3. Stocks/inventories dropped 3.5 points to 50.9 and new orders/business fell 5.5 points to 58.6. Employment fell 3 points to 50.

While the June result may be just "monthly noise" after a strong result in May "we are wary of dismissing June's weakness out of hand, given the PSI is not usually that volatile and the weaker result echoes last week's softer performance of manufacturing index (PMI)," said Steel.

The PSI comes after the manufacturing PMI survey for June released last week showed activity slowed to its lowest level in six months.

The seasonally adjusted composite index, which combines the PSI and the PMI, fell 4.2 points to 52.7 on a GDP-weighted basis and fell 3.4 points to 53.1 on a free-weighted basis.

- BusinessDesk