Manufacturing activity weakens in May

New Zealand’s manufacturing sector continued to weaken in May amidst challenging economic conditions, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May stood at 49.3, which is 2.2 points down from April, although still higher than the March result. The slight contraction recorded in May takes the average PMI value for 2008 to date to 50.9. The May result is well below the average PMI value of 54.3 since the survey began in 2002.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for May in the years 2002-2007 ranged from 51.4-59.2, meaning the May result for 2008 was the lowest recorded.

Business NZ chief executive Phil O’Reilly says the reversal to a sub-50 result for May indicates the tough times manufacturers are facing at the moment.

“There are still groups of manufacturers who are experiencing positive outcomes from the current economic situation, acquiring new customers (here and offshore) and businesses. However, three-quarters of manufacturers are working through issues involving a global slowdown, a high New Zealand dollar and a flat domestic market. Although this offers little comfort, the global PMI shows that New Zealand manufacturers are not alone in dealing with these difficult times.”

Mr O’Reilly says the ongoing drop in the Northern region is still a primary concern, given the high proportion of New Zealand manufacturing that takes place in that part of the country.

Unadjusted results show three consecutive sub-50 values for the first time since the survey began.

Unadjusted results for May showed mixed activity levels throughout the country. The Northern region (44.1) recorded its fifth consecutive decline and now at its lowest level since January 2006. The Canterbury/Westland region (48.2) showed a second consecutive decline, although up slightly on April. The Central region (52.8) recovered from five consecutive declines to record moderate expansion in May, while the Otago/Southland region (51.8) continued to show expansion from the previous month.

Unadjusted results for the various manufacturing industries were almost all in decline during May. The machinery & equipment sector (50.9) continued to buck the trend with its third straight expansion, albeit close to the no change mark. The metal product sector (48.1) showed the strongest level of decline, followed by the food, beverage & tobacco sector (48.7).