Services sector shrugs off mid-year slump

Cafes and restaurants were an area of weakness in the services sector, but overall the sector expanded last month. Photo / Hawkes Bay Today

New Zealand's services sector expanded last month, an early indication the economy is returning to growth after stalling in the middle of the year.

The BNZ-BusinessNZ Performance of Services Index rose to a seasonally adjusted 54.8 in September from 51.9 in August, on a scale where 50 is the neutral point between expansion and contraction.

The reading was the highest level of activity since June.

"This is an encouraging sign following a string of generally weak and disappointing economic indicators for Q2 and much of Q3 including the revelation that the economy slowed to a crawl in Q2," said BNZ economist Doug Steel.

"While only time will tell if it is the forerunner to a more general economic improvement into year's end, for now, at least, it has broken the run of weaker data that prevailed for the early part of Q3."

Of the five services sub-indices, four were in expansion in September led by new orders/business which rose 2.7 points to 57; activities/sales rose 3 points to 57.4, employment rose 1.4 points to 53.5; and supplier deliveries grew 5 points to 53.

Only the stocks/inventories index was still in contraction, though it still rose 2.6 points from August to 49.8.

For the first time since March, unadjusted activity was positive throughout the country.

The northern region again led the way, and rose 4.2 points to 58.5 - the highest result since November 2007 in the three year-old survey.

The three remaining regions returned to expansion in September.

The central region rose 4.8 points to 54.5 after two consecutive months of decline, Otago/Southland rose 8.6 points to 55.8, and Canterbury/Westland rose 5.2 points to 51.6. The report noted no "discernible impact" from the Canterbury earthquake at a headline level.

All firms by size were in expansion during September, the first time since March. Micro-sized firms with fewer than 10 workers showed expansion after three months of decline, with a PSI reading of 51.8.

The remaining firms all experienced similar levels of expansion, with 59 for small-medium firms with 11 to 50 employees, and 61.5 for medium to large firms with headcounts of 51 to 100.

BNZ noted that there were still areas of weakness in the services sector, notably in accommodation, cafes, restaurants and general retailing along with cultural, recreational and personnel services.