BNZ Services Landscape (PSI): Fragile Four
According to the BNZ – BusinessNZ Performance of Services Index (PSI), New Zealand's services sector continued to expand in September, extending its run of growth to four consecutive months.
The PSI for September was 50.9 (where a reading above 50.0 indicates the sector is generally expanding, and a reading below 50.0 indicates the sector is in contraction). This was down a touch from 51.0 in August, but above 50.5 in July.
BusinessNZ's CEO, Katherine Rich said "Four months in a row above breakeven is a genuinely positive run for services, even with September's slight easing. 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."
The respondent comments showed that cost of living pressures, fuel prices, interest rates and election uncertainty remain front of mind. Sentiment remained around similar levels as August, with 59.9% of comments being negative.
New Orders/Business and Stocks/Inventories were the joint strongest sub-indices, at 52.6 and 52.3 respectively. Supplier Deliveries was the weakest at 49.4, with Employment also soft at 49.8, reminding us the recovery is still narrow.
BNZ Senior Economist, Doug Steel said "This marks a fourth month of expansion, a notable feat after two years of contraction. 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."
Q3 inflation looks near RBNZ, but Q4 won’t be
We have been warning of upside risk to Q4 CPI inflation for some time now. The risk continues to escalate with soaring fuel prices, a weak NZ dollar, and today’s data suggesting annual inflation may not have dipped much in Q3.
BNZ Manufacturing Snapshot (PMI): Manufacturing in 'poll' position
According to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI), New Zealand's manufacturing sector expanded at a notably stronger rate in September.
The seasonally adjusted PMI for September was 56.5 (where a reading above 50.0 indicates that the manufacturing sector as a whole is expanding, and a reading below 50.0 indicates a contraction). This was up 3.2 points from 53.3 in August, comfortably above the survey's long-term average of 52.5 and the 15th consecutive month in expansion!
BusinessNZ’s Director of Advocacy, Catherine Beard said: "It's great to see manufacturing expand at a much stronger rate in September. Employment also picked up, now back in expansion at 51.8, which is an encouraging sign that firms are perhaps starting to feel more confident about adding staff. Respondents are still weighing up cost of living pressures, but the strength across New Orders, Production and Finished Stocks suggests there's real momentum building heading into the final quarter of the year."
Sentiment remained mixed despite the stronger result, with 53% of comments being negative. Respondents continued to point to fuel prices and uncertainty ahead of the election, though a solid number cited seasonal upticks, pre-Christmas orders and improving demand as a more positive note.
Employment was the weakest sub-index at 51.8, though still comfortably in expansion and up from 50.0 in August, while Finished Stocks (59.0) and Deliveries (58.8) led the pack. Production (57.0) and New Orders (57.0) also lifted strongly from last month.
BNZ Senior Economist, Doug Steel, said "putting June’s exceptional 60.1 figure to one side, September’s read is the highest print since 2021. An impressive result considering the vast number of domestic and international headwinds currently at play."
BNZ & SEEK Employment Report: Mixed Signals
• Monthly volatility in job ads continues
• But the upward trend remains
• Applications per ad growing again
• Are mixed signals starting to show?
Monthly volatility continues with SEEK job ads down 0.8% over September on a seasonally adjusted basis. This dip likely reflects some lingering correction from the sharp drop and jump of July and August. Looking through the monthly fluctuations, job ads have been trending upwards for some time and are now 7.8% higher than September last year.
QSBO: growth continues, inflation elevated
• QSBO points to growth
• Employment intentions skyrocket
• Pricing indicators elevated, but a bit less so
• Sales, supplies, and labour constraints on growth
• Further monetary stimulus removal ahead
This morning’s NZIER Quarterly Survey of Business Opinion (QSBO) was robust. Indeed, some of the real economy indicators were outright strong. Businesses see growth ahead.
We were looking for the survey to be consistent with ongoing economic recovery amid elevated inflationary pressures. That was certainly the general flavour of the survey, but, as always in such a rich survey, there were a few indicators that are worth keeping an eye on to see how things develop from here.
Fiscal consolidation apparent
• Smaller deficits, bigger surpluses forecast
• Structural deficit reduced to 1.0% of GDP
• Net debt peak forecast lowered
• Stronger nominal economy supports tax revenue
• Expenses as share of economy forecast to fall
• Debt programme reduced
Key forecasts
The core fiscal deficit (OBEGALx) is forecast to reduce to 1.4% of GDP in the June year 2027.
The deficit is forecast to decline to 0.2% in the June year 2028 before returning to a 0.8% of GDP surplus in Fiscal 2029, lifting to 1.4% of GDP in Fiscal 2030, and to 2.0% of GDP in Fiscal 2031.
Net debt rises to 43.7% of GDP in the year ended June 2027 and to a peak of 43.9% of GDP in Fiscal 2028. It then reduces to 39.5% in Fiscal 2031.
Bond programme lowered by $4.0b for Fiscal years 2027, 2028, 2029, and lowered by $3.0b in Fiscal 2030.
Treasury forecast the economy to grow 2.3% in the year ended June 2027 and then lift 2.9% the year after. Growth is expected to average 2.6% per annum in the three years thereafter.
Monthly prices offer no major surprises
• Monthly prices mostly as expected
• But round our annual Q3 CPI forecast up
• We now see it at 3.8% y/y
• Ahead of 4.2% y/y in Q4
• RBNZ forecast 3.9% y/y for both Q3 and Q4
This morning’s August Selected Price Indexes were generally close to our expectations, although marginally firmer all things considered.
BNZ & SEEK Employment Report: Upward trend
• Job ads lift
• Applications per ad also up
• Ads linked to primary exports and construction moderate
• South Island still stronger than the North Island
SEEK job ads increased 5.3% m/m in August on a seasonally adjusted basis following a revised 4.2% m/m drop over July. In our last report we questioned whether July’s sharp decline was signal or noise. August’s data makes the prior dip look more like noise than signal. In fact, job ads are threatening to break free from the tight range they have operated in over the first half of the year with an upward trend becoming clearer. Job ads are 9.7% stronger than a year ago.
RBNZ to tighten in October
• Inflationary pressures are surging
• Oil and NZD the key culprits
• GDP growth enough to support another move
• As economy expands at or above potential
• Ironically, its inflation that stymies growth
When it produced its September Monetary Policy Statement the RBNZ gave a clear indication it had no intention of raising the cash rate by more than 25 basis points between now and the end of the year, and that any such increase was more likely to be at the December meeting than October. We were sceptical about the appropriateness of the stance but felt we had to accept the Bank’s intent. The market did likewise in reducing the chance of a rate increase in October to a very low level.
But things have changed dramatically. So much so that we now think the Reserve Bank has no choice but to raise the cash rate 25 basis points in October. Accordingly, we have decided to reinstate the rate increase we previously removed on the Bank’s advice. We make no other changes to our track which now sees 25 point increases at each meeting until the cash rate reaches 3.75%, which is now one meeting earlier thanks to the reinsertion.
External deficit revised smaller, oil hit begins
Revisions lowered the external deficit. The oil shock has long had us projecting a widening in the current account deficit ahead. This remains the case. The current account deficit stood at 3.2% of GDP in the year to June. The annual deficit a quarter earlier was revised significantly, down to 3.0% of GDP from the 3.6% previously published.
BNZ Services Landscape (PSI): Three on the trot
According to the BNZ – BusinessNZ Performance of Services Index (PSI), New Zealand's services sector continued to expand in August, extending its run of growth to three consecutive months.
The PSI for August was 51.2 (where a reading above 50.0 indicates the sector is generally expanding, and a reading below 50.0 indicates the sector is in contraction). This was up slightly from 50.6 in July, and above 50.9 in June. August's reading matches December 2025, and is the highest the PSI has been since September 2023.
BusinessNZ's CEO, Katherine Rich said "It's encouraging to see the PSI post its strongest reading since returning to growth, though at 51.2 this remains a fragile recovery. With three of the five sub-indices still below 50, there's clearly more ground to make up before we can call this a solid turnaround."
The respondent comments showed that cost of living pressures, interest rates, and election uncertainty remain front of mind for many. Sentiment softened compared to July, with 60.8% of comments negative.
New Orders/Business was the strongest sub-index, at 55.2, followed by Stocks/Inventories at 50.8. Supplier Deliveries was the weakest at 49.0, with Employment and Activity/Sales also soft at 49.4 apiece, a reminder that the recovery remains narrowly based.
BNZ Senior Economist, Doug Steel said "The PSI’s three-month moving average keeps rising and, at 50.9, is at its highest level since July 2023. This gives some confidence that the sector is trending upwards, even if the recovery remains fragile."
Expansion endures
According to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI), New Zealand's manufacturing sector continued to expand in August, though at a slower rate than the previous month.
The seasonally adjusted PMI for August was 53.1 (where a reading above 50.0 indicates that the manufacturing sector as a whole is expanding, and a reading below 50.0 indicates a contraction). This was down 1.2 points from 54.3 in July, but still above the survey's long-term average of 52.5.
BusinessNZ’s Director of Advocacy, Catherine Beard said: "It's pleasing to see manufacturing hold onto expansion, now well over a year running, even as the pace eases back. Employment is the area we're watching most closely, sitting right on the breakeven mark at 50.0. Respondents continue to point to cost of living pressures and the ongoing conflict in the Middle East as reasons for holding back, but New Orders and Finished Stocks remaining comfortably in expansion suggests there's still genuine underlying demand."
Sentiment softened again this month, with 55.7% of comments negative, though a good number of respondents pointed to steady or improving order books as a more positive note.
Employment was the weakest sub-index at 50.0, essentially flat after easing from 52.2 in July, while New Orders (54.9) and Finished Stocks (56.4) held up best. Production (54.2) and Deliveries (52.6) also softened from last month but remained comfortably in expansion.
BNZ Senior Economist, Doug Steel, said "Although weaker than July’s 54.3 print, the 3-month moving average of the PMI continues to rise, indicating the industry is performing well through monthly volatility."
Q2 GDP Preview
We noted yesterday that last week’s building and international trade data placed upside risk to our estimate for Q2 GDP growth. And our expenditure-based measure was already modestly positive. But that we would wait for today’s slew of information on manufacturing, wholesale trade, and the services sector before making any formal change to our GDP pick for the quarter.
RBNZ Takes Fright
The RBNZ raised the cash rate 25 basis points to 2.75%. Anything else would have been flabbergasting.
BNZ Services Landscape (PSI): On a knife edge
According to the BNZ – BusinessNZ Performance of Services Index (PSI), New Zealand's services sector held onto its expansion in July, following June's return to growth.
The PSI for July was 50.6 (where a reading above 50.0 indicates the sector is generally expanding, and a reading below 50.0 indicates the sector is in contraction). This was down slightly from 50.9 in June, but still above 48.1 in May. July marks a second consecutive month above the breakeven mark.
BusinessNZ's CEO, Katherine Rich said "It's encouraging to see the PSI hold above 50.0 for a second month running, even if the pace has eased slightly from June. Employment remains the sector's soft spot, sitting at 48.5 alongside Supplier Deliveries, which tells us firms are still cautious about committing to new hires. Until consumer confidence firms up further, this recovery will likely stay modest rather than becoming the stronger bounce we've seen in manufacturing."
The respondent comments showed that cost of living pressures, fuel and petrol prices, and rising interest rates remain front of mind for many, with a number also citing uncertainty ahead of the election. Sentiment was notably softer than in manufacturing, with 64% of comments negative.
New Orders/Business was the strongest sub-index, at 52.6, followed by Stocks/Inventories at 51.6 and Activity/Sales at 50.5. Employment and Supplier Deliveries were the weakest, both at 48.5, a reminder that the recovery remains narrowly based.
BNZ Senior Economist, Doug Steel said "The PSI was 50.6 in July. Not far from June’s 50.9 outcome but still above the breakeven 50 mark for the second consecutive month. The positive take is that this represents progress with the past two months having shown better readings than for most of the past three years. Moreover, the activity/sales index rose above 50 for the first time in six months".
Down a gear
According to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI), New Zealand's manufacturing sector continued to expand in July, but at a more moderate pace.
The seasonally adjusted PMI for July was 54.3 (where a reading above 50.0 indicates that the manufacturing sector as a whole is expanding, and a reading below 50.0 indicates a contraction). This was down from 60.1 in June but still above 51.5 in May and well clear of the survey's long-term average of 52.5.
BusinessNZ’s Director of Advocacy, Catherine Beard said: "After last month's exceptional result, it's not surprising to see some of that momentum ease, but a reading of 54.3 still represents solid expansion for the sector. What's more concerning is the shift in sentiment, with 57% of comments being negative. Respondents continue to point to the conflict in the Middle East, high fuel and raw material costs, and a general reluctance from customers to spend, with a number also citing uncertainty ahead of the election."
The respondent comments showed that cost pressures, from fuel and freight through to raw materials and the ongoing Middle East conflict remain front of mind for many manufacturers, though a fair share pointed to steady order books and stronger export sales as reasons for optimism.
Every sub-index remained in expansion, though all eased from June's remarkable levels. Production was the strongest at 57.3, followed by Deliveries at 55.8. New Orders fell back to 53.3, Finished Stocks eased to 53.2, and Employment was the weakest at 52.8.
BNZ Senior Economist, Doug Steel said "We acknowledge 54.3 is softer than June’s staggering result, however, some month-on-month volatility in the PMI is common and not an immediate cause for concern."
Labour market at a turning point
• Employment growth accelerating
• Over 65s lead the charge
• But unemployment rising too
• Wage growth has troughed
• Nothing to stop the RBNZ removing stimulus
There was something for everyone in today’s labour market data. Employment was surprisingly strong but so was unemployment. So is this an improving labour market or a deteriorating one? One thing’s for sure: the media will focus almost exclusively on the fact that the unemployment rate, at 5.6%, has hit an 11-year high reflecting the parlous state of the New Zealand economy. And if you want to get really miserable take a look at the jump in the underutilisation rate to 13.8%. Both measures are a focal point of the central bank so, potentially, could give them the jitters.