Service sector expansion keeps economy on track

Phil O'Reilly CEO at Business New Zealand Photo / supplied

New Zealand's service sector grew for a sixth month in July in a sign the economic recovery has enough momentum to ride out the latest bout of global volatility.

The BNZ-Business NZ Performance of Services Index slipped 0.2 points to 54.5 last month, with new orders extending gains to 58.6 while supplier delivers rose 0.9 points to 52, underpinning the sector's growth.

Activity/sales fell 1.3 points to 56.3 and stocks/inventories slipped 0.4 points to 53.5. Employment dropped 2.1 points to 48.8, indicating the sector is paring back on hiring new staff.

"Today's PSI was yet another reminder that the New Zealand economy is, or at least was, headed in the right direction," BNZ head of research Stephen Toplis said in his report.

"We stick to our view that there was sufficient pre-volatility momentum in the economy to provide some confidence that we might fumble our way through this mess."

The index follows its sister series on manufacturing, which is showing that sector keeps buffering New Zealand from the worst of the global downturn as local producers look to sell their wares across the Tasman.

Business NZ chief executive Phil O'Reilly said the decline in employment was "disappointing given it had managed to keep its head above water for the previous five months."

Earlier this month government data showed the unemployment rate was stable at 6.5 per cent in the three months ended June 30, though employers in retail and accommodation shed 22,000 staff in the period to 325,000.

Still, retail trade managed to grow last month, gaining 7.9 points to 50.4 on the PSI, as did accommodation, cafes and restaurants, which increased 5.8 points to 50.4. Wholesale trade slipped 2.9 points to 49.9, while health & community services declined 0.8 points to 55.9.

The Central region led the growth in July at 54.1, followed by Northern region with 53.5. Canterbury/Westland dropped 13.8 points to 45.4, while Otago/Southland was at 46.