Perky services sector in January soothes fears over cooling economy

New Zealand's services sector had a strong start to the year. Photo/Getty Images.

Activity in New Zealand's services sector picked up in January, with strong sales and new orders helping to allay fears that the economy may be poised for a downturn this year.

The BNZ-BusinessNZ performance of services index rose 3.1 points to a seasonally adjusted 56.3 in January, compared to December, tracking ahead of its long-term average, and above the 55 reading this time last year. A reading of 50 separates expansion from contraction.

The activity/sales sub-index jumped 9.2 points to 61.5, and up from 59.1 in January 2018; new orders/business increased 1.8 points to 61.4, compared to 58.2 a year earlier.

Services account for about two-thirds of New Zealand's economic activity. The sector grew 0.5 per cent in the September quarter, half the pace of growth in the June quarter and down from 0.7 per cent in September 2017. That was largely due to shrinking production in information media and telecommunications, and transport, postal and warehousing. There was also a sharp slowdown in retail trade and accommodation.

Bank of New Zealand senior economist Craig Ebert said today's performance of services index, or PSI, will go some way to alleviating fears of a slowing economy as it indicates GDP growth is tracking at around trend rather than below it.

"January's PSI suggests that the services sector is still chugging along relatively well, as we head into 2019, rather than fading as a backbone to GDP growth," he said.

The PSI's sister survey, the performance of manufacturing index, which was released on Friday, showed growth in new orders slowed for a third month in January, raising the prospect of a slowdown.

Combining the two surveys, the index of composite performance rose 2.3 points in January compared with December - reaching 56.1 on a GDP-weighted basis. It was also higher than the 55.4 reading a year earlier. On a free-weighted basis, the compositive measure edged up 0.2 of a point month-on-month to 55.3, but was down from 55.9 a year earlier.

The PSI's employment sub-index rose 2.6 points to 52.9, above the 50.7 reading a year earlier, while supplier deliveries edged up 0.2 of a point to 51.9, and was below the 53.4 reading a year earlier.

The only sub-index below the 50 mark - indicating a contraction in activity - was a 49.9 reading for stocks/inventories, down from 51.2 in December and 53.2 a year earlier.

BNZ's Ebert said the dip in the inventories index appeared to be driven by the increase in sales and new orders.

- BusinessDesk