BNZ - BUSINESSNZ PERFORMANCE OF SERVICE INDEX

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BNZ - BUSINESSNZ PERFORMANCE OF SERVICE INDEX 57.3 +1.

Performance of Services Index (PSI). The PSI for August was 57.3, which was 1.3 points higher than July (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.

1 BNZ - BUSINESSNZ PERFORMANCE OF SERVICE INDEX expanding August Value Monthly Change Faster rate Upwards and onwards 18 September New Zealand s services sector experienced a lift in expansion during August, according to the BNZ - BusinessNZ Performance of Services Index (PSI). The PSI for August was 57.3, which was 1.3 points higher than July (A PSI reading above 50.0 indicates that the service sector is generally expanding; below 50.0 that it is declining). BusinessNZ chief executive Kirk Hope said that after the 2.3 point dip in expansion during July, the movement upwards towards more solid expansion was positive to see. Kirk Hope Chief Executive BusinessNZ Looking at the sub-indices, the two key values of activity/sales (62.9) and new orders/business (63.1) picking up pace assisted the overall result. In addition, the proportion of positive comments (66.9%) lifted well above the 60-point mark compared with July. BNZ Senior Economist Craig Ebertl said that melded with the PMI, the latest PSI forms a picture of rude growth in the NZ economy, overall. Indeed, the composite index continues to point to annual GDP growth running in the order of 3 to 4%. View PSI Time Series Data

Main Indices Regional Results Supplier Deliveries 51.4 Activity/Sales 62.9 Employment 52.2 54.7 55.7 Stocks Inventories 52.8 New Orders Business 63.1 55.8 59.

In this, like we saw in the PMI, there appeared little in the way of election nerves.

Indeed, the composite index continues to point to annual GDP growth running in the order of 3 to 4%.

2 Main Indices Regional Results Supplier Deliveries 51.4 Activity/Sales 62.9 Employment Stocks Inventories 52.8 New Orders Business Services Landscape The PSI The Performance of Services Index (PSI) acquitted itself very well in August. It posted a seasonally adjusted reading of 57.3, from 56.0 in July. In this, like we saw in the PMI, there appeared little in the way of election nerves. Read more GDP Implications Melded with the PMI, the latest PSI forms a picture of rude growth in the NZ economy, overall. Indeed, the composite index continues to point to annual GDP growth running in the order of 3 to 4%. Read more Craig Ebert Senior Economist Retail Retail trade will surely be another of the strong points of the Q2 GDP accounts. However, this was flattered by international visitors for the Lions rugby tour (mainly June) and World Masters Games (April). Read more Housing The REINZ data for August continued to look slow to slower, driven by Auckland, although they were arguably not as soft as expected, especially when considering the impending election. Read more View full BNZ Services Landscape

3 PSI Time Series Table Results are seasonally adjusted National Indices Aug 2016 Apr May Jun Jul Aug BNZ - BusinessNZ PSI Activity/Sales Employment New Orders/Business Stocks/Inventories Supplier Deliveries BNZ - BusinessNZ PSI Time Series January August

4 International Results J.P. Morgan Global Manufacturing PSI TM 6 September 54.1 USA 56.9 UK 53.8 Japan 52.0 Eurozone 54.9 China 51.5 NZ 57.3 Australia 53.0

BNZ - BUSINESSNZ PERFORMANCE OF COMPOSITE INDEX 57.3 57.

5 BNZ - BUSINESSNZ PERFORMANCE OF COMPOSITE INDEX GDP-Weighted Index Free-Weighted Index The seasonally adjusted BNZ - BusinessNZ Performance of Composite Index or PCI (which combines the PMI and PSI) saw the two options for measuring the PCI again both improve during August. The August GDP-Weighted Index (57.3) increased 1.4 points from July, while the Free-Weighted Index (57.9) rose 1.7 points. The increase in expansion levels for both the manufacturing and services sector led to both measures picking up expansion during August. PCI Time Series Table Results are seasonally adjusted National Indices Aug 2016 Apr May Jun Jul Aug GDP-Weighted Free-Weighted View PCI Time Series Data

BNZ - BusinessNZ PCI Time Series January 2013 -

6 BNZ - BusinessNZ PCI Time Series January August Our Contributors The BNZ - BusinessNZ Performance of Services Index contains data obtained through BusinessNZ s regional organisations and Hospitality NZ.

Sponsor Statement BNZ is delighted to be associated with the Performance of Services Index (PSI) and BusinessNZ.

We look forward to continuing our association with BusinessNZ and associated regional organisations, and to playing our part in the ongoing development of the New Zealand service sector.

nz About the PSI The BNZ - BusinessNZ Performance of Services Index is a monthly survey of the service sector providing an early indicator of activity levels.

7 Sponsor Statement BNZ is delighted to be associated with the Performance of Services Index (PSI) and BusinessNZ. The association brings together the significant experience of leading business advocacy body BusinessNZ, and business finance specialist BNZ. We look forward to continuing our association with BusinessNZ and associated regional organisations, and to playing our part in the ongoing development of the New Zealand service sector. Media Comment For media comment, contact: Kirk Hope: Craig Ebert Technical Comment Stephen Summers: About the PSI The BNZ - BusinessNZ Performance of Services Index is a monthly survey of the service sector providing an early indicator of activity levels. A PSI reading above 50 points indicates service activity is expanding; below 50 indicates it is contracting. The main PSI and sub-index results are seasonally adjusted. About the PCI The BNZ - BusinessNZ Performance of Composite Index (PCI) takes into account results from both the Performance of Manufacturing Index (PMI) and the Performance of Services Index (PSI). Combined results are shown in two ways: GDP-Weighted Index: Apportions the weight of the manufacturing and services index within the economy to produce an overall result. Free-Weighted Index: Combines data from both indexes to produce an overall result. Both time series for the PCI are then seasonally adjusted. Level 6, JacksonStone House, 3-11 Hunter Street, Wellington admin@businessnz.org.nz

Services Landscape 18 September The PSI The Performance of Services Index (PSI) acquitted itself very well in August. It posted a seasonally adjusted reading of 57.3, from 56.0 in July.

And similarly, the driving force in the latest Services Index proved to be new orders/business, which accelerated to 63.1, along with activity/sales, at a relatively fast 62.9.

8 Services Landscape 18 September The PSI The Performance of Services Index (PSI) acquitted itself very well in August. It posted a seasonally adjusted reading of 57.3, from 56.0 in July. In this, like we saw in the PMI, there appeared little in the way of election nerves. And similarly, the driving force in the latest Services Index proved to be new orders/business, which accelerated to 63.1, along with activity/sales, at a relatively fast But August s PSI, unlike the PMI for the month, had a relative blot on its copybook, in the form of its employment index. While this was still expansive in fact, still a tad above its long-term average (51.6) it nonetheless slowed noticeably to 52.2, from 55.0 in July. GDP Implications Melded with the PMI, the latest PSI forms a picture of rude growth in the NZ economy, overall. Indeed, the composite index continues to point to annual GDP growth running in the order of 3 to 4%. This is a bit more than we are formally forecasting for the near term, which is 2.5 to 3.0%. As for the June quarter GDP accounts (due 21 September), we are looking for annual growth to come in at 2.5%. This is based on real GDP expanding 0.8% in the quarter itself, after its 0.5% increase in the March quarter. While this pick-up is stoked by primary industry production, the expansion continues to be underpinned by the services sector, in our estimation. Retail Retail trade will surely be another of the strong points of the Q2 GDP accounts. However, this was flattered by international visitors for the Lions rugby tour (mainly June) and World Masters Games (April). So we expect retail trade to contract a little in the September quarter. This is shaped already by recent electronic card transactions. While they increased 0.6% in August this simply made up for their decline in July. As for the underlying trend, we note the retail component of the PSI, while hardly strong over recent months (in non-seasonally adjusted form) wasn t struggling either. We also have to pay heed to the heights of consumer confidence of late (pre-election). Housing The REINZ data for August continued to look slow to slower, driven by Auckland, although they were arguably not as soft as expected, especially when considering the impending election. Yes, sales were down 20% on a year ago, after LVR tightening. But they were -24.5% y/y in July and -24.7% in June. The new composition-controlled SPAR house price index increased 0.5% in the month and over the 12 months. But most interesting in this was that Auckland was down 2.9% compared to a year ago while for the rest of the country prices were up 7.0%. But, bigger picture, we ll just have to wait until the postelection data to judge the housing market undercurrents. Boxing On Good to Go Predominantly Positive Turnover Down But Inflation Varied craig_ebert@bnz.co.nz research.bnz.co.nz Page 1

9 Services Landscape 18 September Contact Details BNZ Research Stephen Toplis Head of Research +(64 4) Craig Ebert Senior Economist +(64 4) Doug Steel Senior Economist +(64 4) Jason Wong Senior Market Strategist +(64 4) Main Offices Wellington 60 Waterloo Quay Private Bag Wellington Mail Centre Lower Hutt 5045 New Zealand Phone: +(64 4) FI: Fax: +(64 4) Auckland 80 Queen Street Private Bag Auckland 1142 New Zealand Phone: +(64 9) Toll Free: Christchurch 81 Riccarton Road PO Box 1461 Christchurch 8022 New Zealand Phone: +(64 3) Toll Free: National Australia Bank Peter Jolly Global Head of Research +(61 2) Alan Oster Group Chief Economist +(61 3) Ray Attrill Global Co-Head of FX Strategy +(61 2) Skye Masters Head of Interest Rate Strategy +(61 2) Wellington Foreign Exchange Fixed Income/Derivatives Sydney Foreign Exchange +(61 2) Fixed Income/Derivatives +(61 2) New York Foreign Exchange Fixed Income/Derivatives Hong Kong Foreign Exchange +(85 2) Fixed Income/Derivatives +(85 2) London Foreign Exchange +(44 20) Fixed Income/Derivatives +(44 20) ANALYST DISCLAIMER: The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject securities and issuers and other subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Markets Division of National Australia Bank Limited, a member of the National Australia Bank Group ( NAB ). The views of the author(s) do not necessarily reflect the views of NAB and are subject to change without notice. NAB may receive fees for banking services provided to an issuer of securities mentioned in this report. NAB, its affiliates and their respective officers, and employees, including persons involved in the preparation or issuance of this report (subject to the policies of NAB), may also from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as advisors, brokers or commercial bankers in relation to the securities (or related securities and financial instruments), of companies mentioned in this report. NAB or its affiliates may engage in these transactions in a manner that is inconsistent with or contrary to any recommendations made in this report. NEW ZEALAND DISCLAIMER: This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. Bank of New Zealand strongly recommends readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication. US DISCLAIMER: If this document is distributed in the United States, such distribution is by nabsecurities, LLC. This document is not intended as an offer or solicitation for the purchase or sale of any securities, financial instrument or product or to provide financial services. It is not the intention of nabsecurities to create legal relations on the basis of information provided herein. National Australia Bank Limited is not a registered bank in New Zealand. research.bnz.co.nz Page 2

BNZ - BUSINESSNZ PERFORMANCE OF SERVICE INDEX

BNZ - BUSINESSNZ PERFORMANCE OF SERVICE INDEX 56.0-0.5 expanding December Value Monthly Change Slower rate Solid performer 23 January 2018 New Zealand s services sector ended the year in solid expansion