Manufacturing grows at slowest pace in more than six years

By Rebecca Howard

June 14 (BusinessDesk) - Manufacturing activity grew at its slowest pace in more than six years last month, and barely remained in expansionary territory.

The Bank of New Zealand-Business NZ performance of manufacturing index fell 2.5 points to a seasonally adjusted 50.2 in May and was down from 54.6 a year earlier. A reading above 50 indicates activity is expanding. It was the lowest reading since December 2012, when it was also 50.2. The last time manufacturing activity contracted was in September 2012 when the index was at 48.5.

"As a growth risk indicator it may not be flashing bright red just yet, but it is moving in that direction in taking on a darker shade of amber," said BNZ senior economist Doug Steel.

The production sub-index fell 3.7 points to 46.4 and the employment measure fell 2.8 points to 48.6. New orders eased 1.8 points to 50.4 while the deliveries sub-index was down 3.6 points at 51.7. The only sub-index to increase was for finished stocks, which was up 4 points at 56.5.

“Production was at its lowest value since April 2012, while the other key sub-index of new orders only just managed to stay in positive territory. Given the latter feeds through into the former, it does not instill a strong belief that the sector will show solid improvement over the next few months,” said Catherine Beard, BusinessNZ’s executive director for manufacturing.

BNZ's Steel also said the “PMI sends a warning signal for near-term growth via its mix of falling production, near flat new orders, and rising inventory.”

While Steel is expecting quarterly economic growth of 0.6 percent and annual growth of 2.4 percent when next week's first-quarter GDP is announced, "growth into the heart of the second quarter of the year has all but stalled in the manufacturing sector."

He said BNZ is currently expecting annual growth in the second quarter to be around 2.1 percent “but a softening PMI adds to the accumulating downside risks.”

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