May march for manufacturing activity

The month of May saw the manufacturing sector continue its march towards stronger expansion, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May was 54.7, up from 52.0 in April and the highest value since June 2010 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). Four of the five indices were in expansion for May, the same as April.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the second consecutive month of improvement in activity is consistent with other positive indicators recently seen within the sector.

“Although there have been some recent publicly announced layoffs in the sector, overall the manufacturing sector has shown signs of resilience, even in the face of a high dollar versus the US dollar. It is particularly pleasing to see such a positive result from Canterbury manufacturers, which have come back quite quickly into expansion mode after the February earthquake in a relatively short space of time.”

“Official data has shown a lift in total manufacturing sales, while manufacturing sector exports have also been steadily rising. Add to that the latest PMI result showing a pick-up in production and new orders and the sector is showing encouraging signs after a turbulent time of late.”

BNZ economist Doug Steel said the May PMI was further evidence of the economic recovery gathering momentum.

“Within the rather diverse fortunes across the manufacturing sector at present, there are some rather strong pulses coming through. Surging commodity income is starting to filter through the economy, and appears to be one factor behind a lift in manufacturers’ new orders. There are also encouraging signs that domestic consumer demand is improving, which may amplify the inventory cycle and the economic recovery we foresee.”

Unadjusted results by region showed three of the four main regions in expansion, with Canterbury/Westland (57.7) leading the way with its highest value since November 2010. This was mainly due to improved production and new order results (both domestically and offshore). The Central region (57.1) bounced back from a sluggish April result, while the Northern region (52.3) returned to a very consistent level of activity for three of the last four months. In contrast, the Otago/Southland region (45.3) remained in contraction for the four consecutive months with employment in the region experiencing a significant drop.