16 Aug 2021

Services sector and employment levels continue to expand

2:35 pm on 16 August 2021

The country's services sector is continuing to expand at a rapid pace, driven by strong demand.

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Despite growth in sales and new orders, supply remains an issue with often cited shipping delays, freight cost escalation and raw material shortages. Photo: 123RF

The BNZ-BusinessNZ Performance of Services Index (PSI) is at 57.9 points, a marginal drop of 0.5 from June, but well above its long term average of 53.9 for the survey.

A rating above 50 indicates growth.

Employment is also continuing to grow (55.2) at above average levels in the sector, despite a tight labour market.

BNZ senior economist Doug Steel said combined with last week's "blistering" Performance Manufacturing Index (PMI) employment reading, it set up Q3 to be another strong quarter of employment growth, and the nation's unemployment rate continues to lower.

"This is good news if you are looking for a job, not so much if you are trying to find staff," he said.

But despite growth in sales and new orders, supply remains an issue.

"The overall strength in the PSI is quite remarkable given that many respondents continue to highlight significant, and ongoing, issues on the supply side. Shipping delays, freight cost escalation, and raw material shortages continue to be commonly cited.

"With this, it is no surprise to see the PSI supplier deliveries index still languishing below the 50 mark in July - as it has for 12 consecutive months now - indicating persistent and significant supply side pain for business," Steel said.

He said the balance of strong demand and compromised supply "is a tinderbox for inflation".

"This only reinforces our view that the likes of annual CPI inflation will push materially higher over coming quarters."

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