Service sector contracts for the first time since July 2010

BUSINESSDESK: New Zealand's service sector contracted for the first time since July 2010 last month, with the latest survey pointing to a slowing of economic growth in the second half of the year. New orders and sales led the decline.

The BNZ-BusinessNZ performance of services index (PSI) fell 0.4 points to 49.6 last month, the second lowest value for a September month since the survey began. A reading above 50 indicates expansion.

"The soggy September Performance of Services Index adds to recent indicators suggesting slower economic growth in the second half of 2012, following what was a very solid performance in the first half," BNZ economist Doug Steel says.

"We are more convinced that growth has slowed – the question remains whether it can bounce back through 2013 as generally positive consumer and business expectations suggest it will."

New Zealand's economic slowdown means the bank has pushed out its timing for a hike in the official cash rate from the Reserve Bank until the end of 2013.

Outgoing governor Alan Bollard kept the OCR at 2.5% at his final review of monetary policy, saying the weak outlook for the country's trading partners threatens economic growth and the strong kiwi dollar.

Today's PSI showed the reading for new orders/business was 52, the fourth consecutive fall and the lowest value since July 2010. Activity sales fell into contraction for the first time since December 2011. Employment and supplier deliveries improved, albeit still in contraction.

The Northern region bounced back into contraction on 52.9 in August, while the Central region fell 9.2 points to 48.7 after seven consecutive months in expansion.

The BNZ-BusinessNZ Performance of Composite Index, which combines the PSI and the PMI, recorded a GDP-Weighted Index dropped 0.5 points to 49.1, the Free Weighted Index was 48.8. That is the first time both indices have been in contraction since the middle of 2009.

Last week's, New Zealand's manufacturing activity shrank to 48.2 in September, for a fourth month from 47.2 in August as new orders fell to the lowest level since May 2009. Four of the five seasonally adjusted diffusion indexes were in contraction in September.