New Zealand’s services sector experienced a decline in February, with the BNZ – BusinessNZ Performance of Services Index (PSI) falling to 49.1 from January’s 50.4. The long-run average for the index is 53.0, indicating a shift in performance.
The brief expansion in January was the only time in the past year that the PSI stayed above the contraction threshold of 50. Meanwhile, the manufacturing PMI for February continued to show signs of expansion.
Weak Demand And Growth Pressures
This downturn in the services sector suggests demand remains weak, with businesses facing ongoing pressures that are limiting growth. A reading below 50 signals contraction, and with February’s figure dipping further from the previous month, there is little indication of immediate recovery. The long-term average of 53.0 shows that, historically, services have tended to perform more strongly. The drop below this level reinforces the notion that conditions remain subdued.
January’s expansion now appears to have been an exception rather than the beginning of a stabilisation phase. One month of growth within a broader trend of decline suggests underlying weakness has not yet been addressed. In contrast, manufacturing has shown more resilience. While services falter, factories have continued to operate at a level that suggests steady, if not particularly strong, performance.
Higgins from BNZ pointed out that a weaker services sector does not bode well for broader economic stability. Lower activity in this area reflects reduced consumer and business expenditure, which tends to have a flow-on effect across other industries. Hospitality, retail, and professional services in particular may be feeling the strain.
New orders and sales, which serve as forward indicators, will need to improve before confidence can return. With inflationary pressures still present, cost considerations likely remain at the forefront for many businesses. Without a clear improvement in demand, any recovery within the sector may take time.
Labour Market Considerations
Labour market conditions will also play a role. If weakness in services leads to slower hiring or job losses, consumer spending could be further constrained. On the other hand, if manufacturing maintains expansion, it may offset some of the softness in services.
We recognise that persistence in these trends could influence broader market movements. A divided economy, where manufacturing is stable but services decline, can affect overall expectations, particularly for those evaluating medium-term pricing adjustments.
Activity levels in the coming weeks will be decisive. If services remain below 50, expectations of a turnaround could be pushed further into the future.
