Manufacturing remains in tight band of activity

Although manufacturing activity experienced a slightly larger decrease in activity in May, the sector generally remains in a tight band of performance since the start of the year, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May stood at 42.7. This was down 1 point from April, and 6.0 points lower than May 2008. However, apart from the February result, the sector has seen little change in activity levels, with values only ranging by 1.7 points since December 2008.

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 2003-2008 ranged from 48.7 and 57.0, with an average score for the previous May results of 53.3.

Business NZ chief executive Phil O’Reilly said that while overall activity for May failed to build on the relative improvements in April, there were signs both here and offshore that any significant worsening of activity may now be less likely. However, the recent fluctuations of the New Zealand dollar was certainly not making life easy for those exporting their products.

“Results offshore over the last 6-8 months have shown a consistent pattern of most values below 40. New Zealand has only sunk that low in November and February, with the remaining months displaying similar and higher values. Potentially, this may give us a stronger base from which to recover, along with recent boosts in global manufacturing activity. However, what might make the mountain steeper on our climb to positive territory is the fluctuating New Zealand dollar. Reports have been coming through this month that our improving dollar is having a negative effect on international orders.”

BNZ Capital Senior Economist Craig Ebert said, “Just when the global activity indicators, particularly around manufacturing, look to be stabilising, the rising currency is causing another layer of concern for the local industry.”

All five seasonally adjusted main diffusion indices continued to display contraction, with all experiencing lower results than the previous month. However, it was also the second consecutive month in which all indices remained over 40.0 for 2009. Production (41.4) fell 1.4 points from April, while employment (43.0) also slipped back from the previous month. New orders (41.3) returned to a similar level seen in March, while deliveries of raw materials (43.0) fell 0.6 points from April. Finished stocks (45.5) decreased another 0.6 points from April to reach a new low since the survey began.

Unadjusted activity for May showed a mixed result by region. In the North Island, the Northern region (43.2) displayed its highest value since October 2008. However, the Central region (36.1) produced its worst result since the survey began, mainly due to significant falls in production and new orders. In the South Island, the Canterbury/Westland region (48.4) continued to show significant improvement over the last few months, while the Otago/Southland region (36.4) continued to flip-flop between a sub and post 40 result.

Click here to view the May PMI and time series data.