A services reading at a multi-year high, led by new orders, strengthens the case that New Zealand’s recovery is spreading beyond a handful of sectors. That gives the New Zealand dollar modest support on the domestic data front. For rate expectations, firmer activity reduces the pressure for further policy support. The flat employment reading and persistent cost-of-living complaints, however, point to slack that has not yet closed. Traders are likely to treat the data as a confidence builder rather than a game changer, and will look to the next few releases to see whether spending held back during the election starts to come through.
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New Zealand’s services firms are finally seeing new business arrive in volume heading into summer, but with hiring still flat, October’s strength looks more like a pre-Christmas lift than a recovery that has fully taken hold.
Summary:
- New Zealand’s services PSI rose to 51.7 in October from 50.9, the highest reading in more than three and a half years.
- It is the fifth consecutive month above the 50 breakeven level.
- New orders (53.0), activity and sales (52.6) and supplier deliveries (52.1) led the gains.
- Employment dipped to 49.9, the only sub-index in contraction, and inventories eased to 50.1.
- The share of negative survey comments fell to 57.9% from 59.9%. Fuel prices, cost of living, interest rates and the election were still the main concerns.
- Survey comments pointed to summer, Christmas bookings and returning tourists as positives, with hopes that spending deferred during the election will come through.
New Zealand’s services sector expanded for a fifth consecutive month in October, with the BNZ-BusinessNZ Performance of Services Index climbing to 51.7 from 50.9 in September. That is the strongest reading in more than three and a half years. A reading above 50 signals expansion.
The gain was led by forward-looking measures. New orders and business rose to 53.0, activity and sales reached 52.6, and supplier deliveries came in at 52.1. Employment was the only sub-index in contraction, edging just below breakeven at 49.9, and stocks and inventories eased to 50.1.
BusinessNZ chief executive Katherine Rich said the run of readings above breakeven stood out against the past few years. She said it was encouraging to see activity and new business rising together heading into summer. She suggested that many firms had put decisions on hold before the election, and that some of that delayed spending and investment could start to come through by the end of the year once a new government is formed.
Survey comments showed businesses are still preoccupied by fuel prices, the cost of living, interest rates and election uncertainty. On the positive side, respondents pointed to the run-in to summer, Christmas bookings and the return of tourists. The share of negative comments fell to 57.9% from 59.9% in September, a modest improvement in tone.
Economists said firmer services activity is especially welcome because of the sector’s weight in the New Zealand economy and its importance for the GDP outlook. If the improvement holds, they said, it would add to evidence that the recovery is broadening and becoming more established.
The softness in hiring is the main caveat. Firms appear willing to take on new business but are not yet adding staff. The next few months will show whether the election delay was the main drag on investment and jobs, or whether the caution runs deeper.
This article was written by Eamonn Sheridan at investinglive.com.