Service sector activity picks up

Activity in the services sector improved in July to the highest level since January and inched above the long-term average.

The BNZ-BusinessNZ performance of services index rose 1.7 points from June to a seasonally adjusted 54.7 and was 1.5 points higher than in July 2018. The long-term average is 54.4. A reading above 50 indicates expansion.

"One should be cautious in reading too much into one month's data, but the positive result is good to see and especially in the context of weakness appearing in a few other leading indicators," said BNZ senior economist Doug Steel.

Activity and sales lifted to 57.2 from 55, while the employment measure inched up to 51.7 from 51.0.

New orders/business rose to 58.2 from 55.3 while stock/inventories lifted to 54.4 from 53.6. The only measure to decline - and remain in negative territory - was supplier deliveries, which eased back to 48.8 from 49.1.

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.