Manufacturing climbs to highest level in nearly a year

Photo / Dean Purcell

New Zealand manufacturing rose in May to its highest level in almost a year amid signs record-high prices for the country's commodities are beginning to filter through to the wider economy.

The BNZ-Business New Zealand performance of manufacturing index rose 2.7 points to a seasonally adjusted 57.7 in May, the highest level of activity since June 2010. A reading of 50 points indicates manufacturing activity is expanding, while below 50 reflects a contraction.

Today's PMI reading comes after New Zealand commodity prices edged up 0.3 per cent in May to a new record, according to the ANZ Commodity Price Index.

"We have long thought that the very strong prices that New Zealand primary producers are currently receiving will form a key part of a strong cyclical pick up in the wider economy," said Doug Steel, an economist at Bank of New Zealand. "Today's PMI results are further evidence that these strong primary revenues are starting to filter through to other parts of the economy."

In May, four of the five PMI sub indices were in expansion, with deliveries leading the way at 57.6, new orders at 56.7, production at 55.2, and employment at 50.8. Only finished stocks were in contraction in the month with a reading of 49.3.

Looking activity on a geographic basis, three of the four main regions were in expansion in May, with Canterbury/Westland at 57.7, the Central region at 57.1, and the Northern region at 52.3. Activity levels in the Otago/Southland region remained in contraction for a fourth consecutive month at 45.3.

The proportion of negative comments rose to 52.8 per cent in the month, compared to 49 per cent in April, with the strength of the New Zealand dollar and the lingering effects of the earthquakes the leading concern among manufacturers.