New Zealand’s services sector has shrunk for five straight months. The Services PMI for June stands at 47.3, which is up 3.2 points from May but still below the historical average of 52.9. Most sub-index results have improved compared to last month, but over the last 16 months, only one month showed any growth in the sector. In June, the manufacturing PMI was 48.8, up from 47.5 in May. However, since a PMI below 50 indicates worsening conditions, the service sector is still struggling. New Zealand’s economic recovery is taking longer than expected. The current data shows ongoing difficulties in both the services and manufacturing sectors. The latest figures indicate persistent weakness in New Zealand’s private-sector economy, especially in industries that don’t produce goods. Even though the services PMI has improved slightly to 47.3 in June, it still signifies contraction. A value below 50 means more businesses report worsening conditions than those that see improvement. Compared to the long-term average of 52.9, the current PMI suggests that service firms may be facing weaker demand, tighter margins, or rising costs. This is not a temporary issue; the services sector has been either contracting or growing minimally for over a year. Only one month in the last sixteen showed growth, making that the exception. The manufacturing PMI, while also below 50 at 48.8, indicates a slightly more stable situation. Still, neither services nor manufacturing has returned to growth, extending the stagnation we’ve observed since late 2022. This ongoing weakness has important implications. The gap between current performance and historical averages suggests that expectations for short-term demand should be lowered. While the volatility is currently manageable, traders linked to regional markets may need to reassess their strategies, especially if their pricing relies on a medium-term recovery. We are keeping an eye on the disconnect between ongoing contraction and the rising sub-components in the survey. Although more sub-indices are improving, they still show a net negative trend. This gradual and uneven improvement suggests we may have to wait longer for significant increases in output or hiring. A key detail is that the declining sentiment aligns with delayed macroeconomic recovery signs. In particular, rate-sensitive segments in services are likely hindering business growth and consumer spending. This prolongs the timeline for any shifts in market expectations. In terms of strategy, it may be wise to keep current positions while allowing for some flexibility as we look for potential changes. No strong indicators are pointing to a local recovery yet, so we should be cautious about interpreting temporary increases in PMI values as signs of a shift in growth. Historically, improvements need to be consistent and rise well above 50 before meaningful activity gains occur. We might start to see slight changes in expected pricing. Right now, we are in a waiting phase. Any significant deviation from expected consensus values in the next few months should be monitored closely, especially if it reveals newfound optimism among businesses or changes in pricing power. Pressure on margins and order volumes continues to be a major concern. Observing how these elements evolve in relation to future guidance will help determine whether this cycle is nearing its lowest point or whether stagnation will persist.

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