Service sector growth slows

Business NZ chief executive Phil O'Reilly

New Zealand's services sector slowed its expansion last month, reflecting a contraction in retail trade, accommodation, cafes and restaurants.

The BNZ-Business NZ performance of Services Index slipped 2.6 points to 54.1 in April, having reached the highest level since November 2007 in March.

The activity/sales sub-index dropped to 53.3 in April, having jumped above 60 for the first time in 28 months in March.

A PSI reading above 50 points indicates services activity is expanding.

The PSI result is at odds with last week's survey on manufacturing, which showed activity rose to the highest level since December 2004 last month, driven by new orders and production.

The PSI figures come after a government report showed retail sales rose a less-than-expected 0.2 per cent in the first quarter, or a decline of 0.5 per cent for core sales excluding autos.

Still, all five sub-indexes in the services survey showed expansion for a second month.

"This survey's outcome is yet another piece of economic evidence that had us feeling guardedly optimistic about the way ahead," said Stephen Toplis, head of research at Bank of New Zealand.

"It's a clear indication that many businesses are now in a position to again look at hiring additional staff as orders and activity pick up," said Business NZ chief executive Phil O'Reilly.

The PSI report showed that new orders/business fell to 57.1 in April, employment was at 54.3 and supply deliveries were little changed at 50.2. Stocks/inventories edged up to 52.2, the highest since November 2007.

Reserve Bank Governor Alan Bollard said this month that households, are focusing on repaying debt and building savings rather than lurching back into debt-fuelled spending.

He has flagged the prospect of resumption in hikes to the official cash rate in coming months and economists are divided on whether he will move in June, July or even the third quarter.