Manufacturing data points to a NZ economy in struggle street

NZ manufacturers struggled in June. Photo / File

New Zealand's manufacturing sector contracted for the first time since the most recent national lockdown in August 2021, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for June was 49.7, down 2.9 points from May.

PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining.

"This was 2.9 points lower than May, and well below the long-term average of 53.1 for the survey," BNZ said.

BusinessNZ's director, advocacy Catherine Beard said the drop in activity levels for June highlighted the fact that the sector "remained in struggle street" to get back to long-term activity levels.

The key sub-index values of production (47.8) and new orders (47.8) both recorded the same level of contraction, which had a combined negative effect on the overall index.

"As mentioned in previous months, a strong and consistent activity level for both these key sub-index values will be the only way to push the PMI towards better results," she said.

"Manufacturers continue to have a more negative mindset, with the June result showing 68.5 per cent provided negative comments."

While this was down from 72.7 per cent in May and 70.3 per cent in April, staff retention/shortages continue to plague the sector, as does supply chain issues.

BNZ senior economist Doug Steel said June's weak PMI adds a note of caution "and certainly supports our broader concern about economic growth ahead".

The PMI follows on from Wednesday's decision from the Reserve Bank to increase the official cash rate by 50 basis points to 2.50 per cent.

The Reserve Bank increased the OCR to 2.50 per cent as widely expected.

The RBNZ endorsed the OCR path that it projected in its May monetary policy statement, and repeated much of the language from that as well.

BNZ senior markets economist Craig Ebert said the Reserve Bank's monetary policy report (MPR) had tried to hold the market levels where they were, and for the most part succeeded.

Before the MPR, the market was pricing in half point rises in July, August, October and November, taking the OCR to 4 per cent and roughly resembling the Reserve Bank's own official interest rate track.

"Market pricing really hasn't changed that much - it's largely in line with the Reserve Bank's," Ebert said.

The Reserve Bank's forecasts have the official cash rate peaking at 3.9 per cent by June 2023.