The services sector expanded slightly in September according to the latest BNZ – BusinessNZ Performance of Services Index (PSI), although firms remain hesitant and cautious ahead of the upcoming general election in November.
The latest monthly edition of the survey was released on Monday, showing a PSI reading in September of 50.9. A reading above 50.0 indicates the services sector is generally expanding, while a reading below 50.0 indicates it's declining.
The NZ services sector makes up about two-thirds of the country’s Gross Domestic Product (GDP), the official measure of economic growth.
September’s PSI was 0.1 points lower than August’s 51.0 result, but above the PSI reading of 50.5 in July.
BusinessNZ chief executive Katherine Rich said the PSI has now spent four months in a row above the 50.0 breakeven mark, describing it as a “genuinely positive run” for the services sector, despite the slight easing in the September survey.
“What stands out to me is how much caution is still baked into the sector, as businesses are clearly in ‘wait and see’ mode with the election approaching and that's likely to keep a lid on any stronger lift until there's more certainty,” she said.
Comments from PSI survey respondents also showed that cost of living pressures, fuel prices and interest rates remain front of mind. Sentiment remained around similar levels in August, with 59.9% of survey comments being negative.
BNZ senior economist Doug Steel said September’s PSI told the story of an industry – gradually – moving in the right direction.
“But growth in the services sector remains weak, particularly compared to manufacturing as indicated by the Performance of Manufacturing Index (PMI), which has sat well above 50 for some time,” he said.
Across the PSI’s five main subindices, new orders/business and stocks/inventories were the joint strongest subindices, at 52.6 and 52.3 respectively. Supplier deliveries were the weakest subindex at 49.4, while employment was also soft at 49.8, a reminder that the economic recovery is “still narrow,” according to Rich.
Steel said new orders have been the strongest PSI subindex since June, an encouraging sign for the economic outlook.
“Meanwhile, the activity/sales subindex has been recovering from low levels but remains soft relative to the strength in orders. Elevated inventories may help explain this gap, as they build before new orders are filled. Although higher inventories could instead signal that demand is softer than expected. This dynamic will be worth keeping an eye on,” he said.
“Disappointingly, the employment subindex remains soft, having indicated contraction since mid-2023. Given the size of the services sector in New Zealand’s economy, a sustained improvement in the unemployment rate looks unlikely until hiring here picks up.”
However, Steel pointed out that the PSI employment subindex rose to its highest level since November 2023 in September, which suggested employment growth may not be far away as activity and broader economic momentum strengthen.
The jobless rate rose to 5.6% in the June quarter, the highest it has been for more than a decade, with 166,500 people unemployed in April, May and June. The labour market statistics for the September quarter will be released on November 4.
Manufacturing sector ‘notably’ expands
The BNZ - BusinessNZ Performance of Manufacturing Index (PMI) released on Friday found NZ’s manufacturing sector expanded at a “notably stronger rate” in September and performed much better than the September PSI.
The PMI for September was 56.5. Similar to the PSI, a PMI reading above 50.0 indicates the manufacturing sector is generally expanding, while a reading below 50.0 indicates it’s declining.
September’s PMI was up 3.2 points from 53.3 in August, comfortably above the survey's long-term average of 52.5. It was also the 15th consecutive month of growth.
BusinessNZ director of advocacy Catherine Beard said that it was good to see manufacturing expand at a much stronger rate in September, while BNZ's Steel said September’s PMI reading was the highest print since 2021, following June’s “exceptional” 60.1 figure.
“An impressive result considering the vast number of domestic and international headwinds currently at play,” he said.
“Confidence that New Zealand’s manufacturing sector is growing has been further solidified.”
Steel said that although uncertainty remains, September’s PMI result was further evidence of moderate GDP growth in the second half of 2026 and supported BNZ’s view that the manufacturing sector will be a “positive contributor.”
“Putting the latest PSI and PMI together, the composite index lifted to 51.6 over September. This is supportive of GDP growth and is in line with other indicators and our view of moderate economic growth through to the end of the year,” he said.
Statistics NZ will release the September quarter GDP figures on December 17. In the June quarter, NZ’s economy grew by only 0.2%, above the Reserve Bank’s projection that economic growth would be flat.
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