Services sector positive despite slowing

Retailing shows up as one of the strongest industries in the services sector. Photo / Michael Craig

The services sector, which accounts for about two-thirds of the economy, slowed in June, although it remains in positive territory with retailing one of the strongest industries.

The BNZ-BusinessNZ performance of services index fell 0.2 of an index point to a seasonally adjusted 56.7 last month. All five sub-indices held above a reading of 50 which separates contraction from expansion.

"Much like the PMI [manufacturing index] did, the PSI exhibited resilience in June, with an index reading of 56.7," said Bank of New Zealand senior economist Craig Ebert.

"There was also accord in the fact the PSI indicated the fastest rate of expansion was occurring in the North Island. As it turned out, June's PSI was barely different to May's outcome of 56.9 and took the three-month average up to a very solid 57.1."

The PSI's sister survey showed manufacturing improved again last month, with all regions expanding, though economists warned a stronger kiwi dollar could weigh on the sector's export earnings.

The composite index, which combines the two measures, held at 56.9 on a GDP-weighted basis and edged down 0.3 of a point to 57.2 on a free-weighted basis.

Ebert said the retail trade category had been one of the strongest in the PSI, with a three-month average of 56.5, against 49.2 a year earlier.

"This aligned with the recent trend in electronic card transactions, especially after their reported 1 per cent increase in the month of June.

"The other source of confidence in the retail sector came from the merchants' component of the QSBO [NZIER's Quarterly Survey of Business Opinion]. This, in June, had a reasonably positive view on activity over the coming six months. This suggests retail trade growth, as per the Statistics NZ series, will largely sustain its recent solid pace through calendar 2016."

Three of the five sub-indices improved in June, with supplier deliveries up 2.8 points to 55.2 and stocks/inventories up 1 point to 53.4.

Employment rose 0.4 of a point to 55.1. Activity/sales dropped 2.1 points to 58.1, and new orders/business fell 1.7 points to 58.3.