Services sector keeps its head above water as jobs slump drags on

New Zealand's services sector showed slight improvement in July but remained just above the expansion-contraction boundary. The BNZ-BusinessNZ Performance of Services Index edged down 0.3 points to 50.6, indicating a second month of expansion but falling short of its long-term average of 52.8. Despite this modest growth, the sector continues to shed jobs, with a 32-month streak of job losses reflected in the employment index, which sits at 48.5.

BusinessNZ chief executive Katherine Rich noted the encouraging expansion but expressed caution among firms about hiring. The sentiment was notably more negative than in the manufacturing sector, with 64 percent of respondents expressing negative comments. Cost-of-living pressures, fuel prices, interest rates, and election uncertainty were the primary concerns raised by businesses.

Sub-indices revealed new orders/business as the strongest at 52.6, followed by inventories at 51.6 and activity and sales at 50.5. However, employment and supplier deliveries were the weakest, both at 48.5. According to BNZ senior economist Doug Steel, the PSI remaining above the breakeven mark for a second consecutive month was positive, with the past two months producing strong readings in three years.

However, employment remained the services sector's Achilles' heel, with little chance of the unemployment rate falling until meaningful hiring returns. Combining these results with Friday's manufacturing survey, Steel projected annual GDP growth of about 2 percent.