Friday 15th June 2018
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New Zealand's manufacturing activity weakened in May to produce a reading "just above average", with an "abrupt stalling" in the employment index raising concern.
The BusinessNZ-Bank of New Zealand performance of manufacturing index fell to 54.5 in May from 59.1 in April. A reading above 50 separates expanding activity from contraction.
"Having roared to a high level in April (59.1), New Zealand’s Performance of Manufacturing Index (PMI) fell back to just above average in May, with 54.5," BNZ senior economist Craig Ebert said in a note. "This harnessed it more in line with its average over the Jan-Mar quarter. As such, May’s PMI cemented the idea of a moderating rate of expansion in the manufacturing sector, compared to calendar 2017. Then again, above average is above average, which is encouraging."
Still, Ebert noted that despite the May PMI looking "fine" on 54.5, it harboured an "abrupt stalling" in the employment index which slumped to 49.8 from 54.5 in April.
"To be sure, this is a jumpy series at the best of times. And it has 'faked' many a stalling over recent years, when employment growth in the manufacturing sector was, in fact, fundamentally robust," Ebert said. "Nevertheless, we can’t as easy look through this latest slump in the PMI’s jobs index, given the recent slump in business sentiment. How this ongoing lack of confidence – nine months on from the election – translates, or not, into the labour market (and investment) will be important to monitor."
Ebert said he expects a moderate increase in manufacturing output to be recorded in first-quarter GDP, which is due on June 21.
"This implies that manufacturing has survived a number of slings and arrows that might have otherwise meant a clear drop in its overall activity in the March quarter," he said. "These slings and arrows include a slip in building work, depressed dairy and meat processing, a correction in forestry harvesting, even timing issues for some major manufacturers of industrial products."
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