Services sector back in growth, but barely

The services sector - which makes up about three-quarters of economic activity - has edged back into growth, but weak hiring shows the recovery remains fragile.

The BNZ-BusinessNZ Performance of Services Index rose to 50.6 in June, just above the 50-point level separating expansion from contraction.

BusinessNZ chief executive Katherine Rich said the return to expansion was heartening, but the recovery remained tentative.

BNZ head of research Stephen Toplis said the direction of travel was heading the right way.

"The good news is that it's trending in the right direction, it's just not trending there very quickly."

New orders were the strongest sub-index at 53, but activity and sales remained in contraction territory at 49.3, and employment was weakest at 48.8.

The BNZ report said employment had now been below 50 for 31 consecutive months.

"If you take this survey at face value, it still means the services sector in totality is shedding labour rather than employing more people," Toplis said.

Toplis said that was consistent with unemployment rising, with BNZ expecting the jobless rate to reach about 5.8 or 5.9 percent by the end of the year.

The survey also showed a split between stronger rural and export-linked activity and weaker consumer-facing sectors.

Transport and storage was the strongest industry group at 57.2, while accommodation, cafes and restaurants were deep in contraction at 36.3.

Rich said the hardest-hit parts of the sector were those most exposed to discretionary spending, "where households are still holding onto their money for fuel, food and other essentials".

Toplis said rural and export-linked sectors were doing well, while hospitality was still struggling, reflecting a "split economy".

He said the lift in new orders was a forward indicator and suggested "better times ahead".

BNZ said the lift in services and manufacturing suggested economic growth could soon climb to about 2 percent.