Manufacturing activity sinks lower

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Activity in the manufacturing sector remains stubbornly weak as fading demand forces firms to scale back their production.

The latest BNZ-Business New Zealand performance of manufacturing index fell 1.6 points in May to 47.2 – with the sector in contraction for 15 months consecutively.

BNZ senior economist Doug Steel said there was little to suggest a positive turnaround.

Demand has fallen sharply with new orders going backwards for 21 months of contraction, longer than during the global financial crisis (GFC).

“The PMI tells us that the manufacturing sector is still going backwards,” Steel said.

“It’s exceptionally weak on the new orders front (44.4). If you look at it compared to normal it’s well below what is typical for this series.

“One thing that is disconcerting is that new orders are falling while inventory is rising and that combination doesn’t spell good news for production ahead.”

Steel said employment was broadly flat as employers try to hold on to staff and see out the weakness in demand.

“With first quarter GDP numbers coming out next week, manufacturing will be a drag on growth and the second quarter will be no better.”

New Zealand’s 47.2 in May lagged international results with a global PMI of 50.9 in the latest JP Morgan Global Manufacturing PMI released in early June.

Australia has an edge in manufacturing activity over New Zealand while still recording a flat 49.7 – a reading below 50 indicates the sector is shrinking.