NZ manufacturing firms up in May as production surges, forestry strengthens

Friday 17th June 2016

New Zealand manufacturing activity continued to firm in May as production surged, while employment resumed its expansion.

The BNZ-BusinessNZ performance of manufacturing index rose to a seasonally adjusted 57.1 last month from 56.6 in April. A reading of 50 separates expansion from contraction and the long-term average is 53.1.

The manufacturing sector has been expanding since October 2012 and has held above its long-term average for the past 11 months. Bank of New Zealand senior economist Craig Ebert said the "underlying pulse" in manufacturing was solid, despite yesterday's gross domestic product report showing manufacturing fell in the first quarter. That decline reflected timing issues in rural processing after a bumper third quarter in 2015. On the basis of the PMI, the bank is forecasting a rebound in manufacturing GDP over the second and third quarters, Ebert said.

The PMI showed the measure of production rose to 61.1 last month from 58.7 in April, and new orders increased to 59.9 from 59.7. Employment moved into expansion with a reading of 52.8 from 50, while deliveries fell to 55.1 from 56.6.

Finished stocks dropped to 48.9 from 53.4.

"This looks to be a 'caught short' kind of thing, given the utter strength in the demand-side indicators in May’s PMI," Ebert said.

Forestry was a "bright spot" in the first-quarter GDP accounts, Ebert said, as the industry had struggled in 2015 but there were signs of renewed life in the March quarter. The forestry and logging component of GDP, for example, expanded 5.2 percent in the first quarter, returning its annual growth into positive territory. Manufactured wood and paper products increased 1.9 percent in the quarter, to be up 5.3 percent on a year prior.

"Structural demand from China (and India?) and a strong local construction outlook promise to underpin New Zealand’s forestry activity, and prices," Ebert said in his report.

BusinessDesk.co.nz

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