New Zealand's July Services Industry Expands at Slowest Pace Since October

New Zealand’s services industry expanded at the slowest pace since October on fewer sales and orders, adding to the case for gradual interest-rate increases.

The performance of services index fell to 50.5 in July from a revised 55.1 in June, Bank of New Zealand Ltd. and Business New Zealand, a Wellington-based employer group, said in an e- mailed statement. A reading above 50 indicates an expansion.

Central bank Governor Alan Bollard on July 29 raised the official cash rate for the second time in as many months to 3 percent and said the pace and extent of further increases may be more moderate as the outlook for economic growth has softened. Recent reports showed house sales are falling, unemployment is rising and manufacturing in July was the weakest since January.

The index “was another piece of unwelcome news,” said Craig Ebert, senior markets economist at Bank of New Zealand in Wellington. Still “we think it highly premature to presume the survey confirms any stalling in the underlying economic expansion,” he said.

House sales fell to a six-month low in July, the Real Estate Institute said Aug. 13, and the jobless rate rose to 6.8 percent in the second quarter, a report this month showed.

Still, retail sales increased at four times the pace expected in the three months ended June 30, and the outlook for exports, which make up 30 percent of New Zealand’s economy, remains strong, Ebert said.

The index measures sales, employment, new orders, inventories and supplier deliveries. The gauge of orders fell to 54, which is still an expansion and signals a decline in sales may be overstated, Ebert said. Most of the industry groups in the survey also remained positive, with the exception of retailing and hospitality, he said.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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