NZ services sector expands in March

New Zealand's services sector accounts for about two-thirds of the economy. Photo / Janna Dixon

Activity in New Zealand's services sector, which accounts for about two-thirds of the economy, expanded in March as the new orders/business sub-index pushed higher as record migration and tourism have underpinned recent gains in consumer spending.

The BusinessNZ-BNZ performance of services index rose 0.3 points to 59 in March, the second-highest level of expansion over the past 18 months. Two of the five sub-indices increased, and all remained above the level of 50 that separates expanding activity from contraction. The PSI three-month average was 59, its highest level since the first three months of the survey in 2007.

"New orders/business were at its highest level since June 2007, which should feed through to activity/sales in the months ahead. Combined with 65.6 percent of respondents providing positive comments, the sector is currently in a solid and positive place," said BusinessNZ chief executive Kirk Hope. New orders/business rose to 66.4 versus 62 in February.

Consumer spending last year surprised the Reserve Bank, stoking concerns people were more willing to fund retail purchases through debt at a time when consumer price increases have been fairly flat.

Bank of New Zealand economist Doug Steel noted the unadjusted PSI for retail trade punched up to 63 in March, well above its average for this time of year. Electronic card transaction data supports the buoyant demand story.

In the other direction, the 8,504 house sales in March were 10.7 per cent down on a year earlier. However, the drop in house sales is a lesser annual fall than over recent months, indicative of a somewhat better month in March itself. In the PSI, finance and insurance as well as the property and business components sit well above average levels for this time of year, said Steel.

Employment, however, dipped to 52.8 from 54.7 in February but "still implies reasonable employment growth," said Hope. Given the rise in the activity/sales indicator, which was 61.1 versus 60.6 last month and the strong rise in new orders/business "one has to wonder if relatively softer employment growth reflects a shortage of appropriate staff rather than a lack of demand for labour itself," he said. He noted that recent data from the New Zealand Institute of Economic Research's quarterly survey of business opinion also saw service sector firms report increasing difficulty finding staff.

"Indeed, on that measure, in the first quarter of the year, difficulty in finding unskilled staff has intensified to its highest level since 2007. No wonder capital investment intentions by service sector firms are positive and well above average," he said.

The composite index, which marries the PSI and performance of manufacturing index, rose 0.8 points from February to 59 on a GDP-weighted basis and gained 1.1 points to 58.7 on a free-weighted basis. The pick up in both indices was due to a combined lift in activity across both the manufacturing and services sectors.