Services sector activity slowed in June; retail still upbeat

New Zealand's services sector, which accounts for about two-thirds of the economy, slowed in June, although it remains in positive territory with retailing one of the strongest industries.

The BNZ-BusinessNZ performance of services index fell 0.2 of an index point to a seasonally adjusted 56.7 last month, with all five sub-indices holding above a reading of 50, which separates contraction from expansion.

"Much as the PMI did, the PSI exhibited resilience in June, with an index reading of 56.7," Bank of New Zealand senior economist Craig Ebert said in his report. "There was also accord in the fact the PSI indicated the fastest rate of expansion was occurring in the North Island. As it turned out, June's PSI was barely different from May's outcome of 56.9 and took the three-month average up to a very solid 57.1."

The PSI comes after its sister survey showed manufacturing improved again in June, with all regions expanding, though economists warned a stronger New Zealand dollar could weigh on the sector's export earnings.

The composite index, which combines the two measures, was unchanged at 56.9 on a GDP-weighted basis and edged down 0.3 of a point to 57.2 on a free-weighted basis.

Mr Ebert said the retail trade category had been one of the strongest in the PSI, with a three-month average of 56.5, compared to 49.2 a year earlier.

"This aligned with the recent trend in electronic card transactions, especially after their reported 1% increase in the month of June," Mr Ebert said. "The other source of confidence in the retail sector came from the merchants' component of the QSBO (NZIER's Quarterly Survey of Business Opinion). This, in June, had a reasonably positive view of activity over the coming six months. This suggests retail trade growth, as per the Statistics NZ series, will largely sustain its recent solid pace through calendar 2016."

Three of the five sub-indices improved in June, with supplier deliveries up 2.8 points to 55.2 and stocks/inventories gaining one point to 53.4.

Employment rose 0.4 of a point to 55.1. Mr Ebert said the index was now "well above its long-term average of 51.3" and the gain "fits with a number of other indicators on hiring that are starting to look hefty for New Zealand."

Activity/sales dropped 2.1 points to 58.1, and new orders/business fell 1.7 points to 58.3.

(BusinessDesk)