Employment and supply-side challenges are holding back growth in a buoyant services sector

The latest index showed a decline in trade in cafes and restaurants compared to the previous index.
Photo: 123rf

Activity in the country’s service sector remains strong, but the rate of expansion has slowed as companies continue to face employment and supply challenges.

The BNZ-Business New Zealand Performance of Services Index (PMI) fell 2.8 points to 55.8 in September, well above its long-term average.

A reading above 50 indicated that the sector was expanding.

BNZ chief economist Craig Ebert said unlike the manufacturing sector where new business remained just above the expansion, the services sector was seeing new business well above the trend.

Sales and activity levels have also remained strong, but employment has held steady and there are signs that supply remains a lingering issue.

“Leading for the fourth consecutive month [were businesses in] cultural, recreational and personal, with a whopping 80.0. The relaxed Covid settings and the open border are clearly reaping continued rewards. That said, the index on accommodation, cafes and restaurants slowed to 54.2 from 60.6.

“Notably, the retail result of 64.1 is consistent with September’s big gain in electronic card transactions,” Ebert said.

Higher scores indicated stronger levels of expansion.

Ebert said the strong PSI and slowing manufacturing performance index pointed to solid economic growth for the three months to September.

He said BNZ expected gross domestic product growth of 1% in the quarter.

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