Hot real estate market underpins service industries activity

Steady expansion underpinned by rising activity in the banking, financial and legal services industries.

The service sector, accounting for around 70 percent of New Zealand activity, is reporting steady expansion, underpinned by rising activity particularly in the banking, financial and legal services industries.

The latest BNZ-Business New Zealand Performance of Services Index (PSI) clocked in at 54.4 in March, one pip down from February. A reading above 50.0 indicates that the service sector is generally expanding, below 50.0 that it is declining.

That made it the strongest month of March in four years.

BNZ senior economist Craig Ebert says although the recent surge in house prices and sales is potentially unsustainable, "the recent hot spots likely helped the March PSI to its still-strong reading for March, via real estate, legal and financial services".

That meant strong positive results for the northern region, including Auckland, and all of the South Island, where the Christchurch rebuild and dairy industries are pushing growth.

The central region, including Wellington, fell back into negative territory, at 45.3, compared with 57.2 for the northern region, 58.7 in Canterbury/Westland and a strong 62.3 in Otago/Southland.

"Consecutive and consistent levels of healthy expansion in the service sector have been few and far between over the last few years, so the current result is encouraging," BusinessNZ chief executive Phil O'Reilly says in a statement.

"Like the main result, the proportion of positive comments from respondents (64.7 percent) was all but identical from last month.

"Weather conditions dominated actual comments made, with many finding the fine weather a boost for activity. However, others providing negative comments have outlined the drought as a constraint on growth."

Four of the five main sub-indices showed expansion in March, led by new orders/business (58.4), followed by activity/sales (57.3) and employment (53.3). Supplier deliveries (52.1) fell back 3.2 points, while stock/inventories (49.6) dropped to levels seen over the New Year period.