Service industry feeling pinch but remains powerhouse for economy

BNZ Senior Economist Craig Ebert.
BNZ Senior Economist Craig Ebert. Photo credit: RNZ /Dom Thomas

Service sector activity has eased back last month to its slowest rate since April, but remains in expansion and proving to be the engine room for the economy.

The BNZ - BusinessNZ Performance of Services Index fell 3.4 points from October to 53.7, just above its long term average.

A fall in sales, new orders, and supplier deliveries were the main brakes on the PSI, while employment also eased back.

BNZ Senior Economist Craig Ebert said service industries were offsetting weakness in manufacturing.

"November's PSI proved, for the third month running, to be an important counterpoint to the weakening PMI."

He said manufacturing looked to be facing a rough patch in the last quarter of the year.

"In contrast, it looks as though the services industries - just like they did in Q3 - will more than make up for any weakness in manufacturing in Q4, such that GDP (gross domestic product) for that quarter manages an expansion."

Ebert said the fall in supplier deliveries implied supply-side issues remained an obstacle, while the demand side of the services sector still appeared robust, with new orders/business close to normal.

He said individual service industries performances were mixed with clear negativity in retail trade, while accommodation, cafes and restaurants were busy, as did cultural, and recreational businesses which were sensitive to tourism along with Covid-19-related settings.

"This might also explain the region-besting result for Otago/Southland."

Ebert expected service sector activity to remain positive going into the new year albeit at a slower pace.