Activity in New Zealand’s services sector eased in February to below the long-term average, weighed down by a fall in activity and sales. 

The BNZ-BusinessNZ performance of services index fell 2.4 points to a seasonally adjusted 53.8 compared to January and was slightly below the long-term average of 54.5.  A reading above 50 indicates expansion.

The activity/sales sub-index was at 53.4 versus 61.5 in January and 54.3 a year ago. The new orders/business measure was at 59.9 from 61.3 a month earlier and 61 in February last year. 

Services account for about two-thirds of New Zealand’s economic activity. The sector grew 0.5 percent in the September quarter, half the pace of growth in the June quarter and down from 0.7 percent in September 2017.

Bank of New Zealand senior economist Doug Steel said there “remains no clear direction.”

While the PSI eased “that simply returns the index to a level similar to that seen towards the end of last year.” 

The PSI’s sister survey, the performance of manufacturing index, was released on Friday. It showed manufacturing activity continued to expand in February, although a build-up in inventories may indicate slower production in the future.

Combining the two surveys, the index of composite performance fell 1.9 points from January to 54.1 on a GDP-weighted basis. That was also lower than the 55.1 reading a year earlier. On a free-weighted basis, the measure edged down 0.7 of a point month-on-month to 54. It was 54.9 a year ago. 

Looking ahead to this week’s fourth-quarter gross domestic product data, Steel said BNZ expects the service sector slowdown “now long portrayed by the PSI to show up in the official GDP figures from as early as this week’s figures.”

However, the composite reading may “provide some solace for NZ economic growth watchers.” 

Economists expect the economy to have expanded 0.6 percent in the fourth quarter and 2.5 percent on the year, according to the median in a Bloomberg poll. The central bank, meanwhile, is tipping a 0.8 percent expansion. 

The PSI’s employment sub-index was at 51.9 versus 52.7 in January and 50.8 a year ago. Supplier deliveries contracted and were at 49.9 versus 51.9 in the prior month and 54.1 in February last year.

Stocks/inventories also continued to contract, reaching 49.3 versus 49.9 in January and 53.9 a year ago. 

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