The sales index "is now comfortably above its long-term average of 55.9 and is significantly above a recent low of 51.7 back in April. Also encouraging is the lift in new orders to 58.2, to be back in touch with historical norms," said Steel.
The better-looking PSI offers some hope that GDP growth in the service sector can hang together in the second half of the year, he added.
He noted, however, when combined with last week's soft manufacturing index "the combined measure continues to cast doubt on whether the economy as a whole can even grow at 2 per cent never mind the 3 per cent-plus that the RBNZ are forecasting for next year," he said.
The PSI's sister survey, the performance of manufacturing index, was released on Friday and showed that activity contracted for the first time in seven years as new orders dried up and job numbers tumbled.
The index dropped 2.9 points to 48.2 in July, falling below the 50 level that separates expansion from contraction for the first time since September 2012.
Combining the two surveys, the composite index rose 1.2 points from June to 54.1 on a GDP-weighted basis.
On a free-weighted basis, the measure fell 0.4 of a point to 52.1. The increase in the former was due to a lift in services sector activity, while the latter was dragged down by a fall in manufacturing activity.