NZ services sector activity rises in November, while employment lags behind: PSI

The BusinessNZ-BNZ performance of services index rose 1.3 points to 57.9 in November, still above the long-term average of 54.1. Photo / Duncan Brown

Activity in New Zealand's services sector, which accounts for about two-thirds of the economy, strengthened last month as sales improved, although employment was subdued as competition for workers increased.

The BusinessNZ-BNZ performance of services index rose 1.3 points to 57.9 in November, still above the long-term average of 54.1. Three of the five sub-indexes rose, and all remained above the level of 50 that separates expanding activity from contraction.

"This is more than just the run up to Christmas, given that these figures adjust for usual seasonal patterns," Bank of New Zealand economist Doug Steel said in a report. "Sales activity is leading the charge. Indeed, at 64.2, the PSI sales index has hit its highest reading since the survey started nearly 10 years ago. Meanwhile, new orders rose to their highest level this year, at 61.7."

Supplier deliveries also rose, up 1.3 points to 56, while employment dropped 2.4 points to 52.2 and stocks/inventories fell 1.8 points to 52.1.

"Sure, employment is positive, but it is relatively subdued compared to demand," Steel said. "This mix suggests firms are having difficulty finding required staff. It is a view reinforced by a few respondent comments this month. It adds to recent results from the Quarterly Survey of Business Opinion that showed a tightening in the labour market. The signal of strong demand relative to supply implies there is developing pressure on inflation, including wage inflation."

Steel said disruption after the earthquakes in central New Zealand during November hadn't dimmed activity.

"While that has obviously caused significant disruption for some, it has also boosted demand for others according to the dozen PSI respondents that noted the tremors as a major influence on their business," Steel said.

The survey's sister series, the performance of manufacturing index, last week showed manufacturing activity softened for the second month in a row in November while holding above its long-term average. New Zealand's manufacturing sector had almost been in continuous expansion since October 2012, barring a blip in January last year. The economy has been buoyed by a construction boom that started in the post-earthquakes Christchurch rebuild and has extended to Auckland's housing market.

The composite index, which marries the PSI and PMI, increased 0.7 points to 57.2 on a GDP-weighed basis and gained 0.6 points to 56.2 on a free-weighted basis. BNZ's Steel said the two surveys indicate economic growth is above average in the second half of 2016.