Pall hangs over manufacturers as activity perks up in May

Not all in the manufacturing sector are feeling positive. Photo / 123RF

Manufacturers remain negative despite some recovery in activity last month.

Bank of New Zealand economist Craig Ebert said activity improved from April, when the national lockdown kept any non-essential manufacturer closed. The performance of manufacturing index rose to an adjusted reading of 39.7 in May from the all-time low of 25.9 in April.

"That result for April, of course, traversed the most extreme period of lockdown, related to Covid-19. May benefited from a partial relaxation of the restrictions," Ebert said.

"Still, a negative tone remains evident in the fact that, even with its bounce in May, the NZ PMI merely got back to the sort of levels it sank to during the 2008/09 recession."

Ebert said Covid-19 restrictions have loosened further since, and the PMI will probably show more spark in June and July as the economy recovers from the worst of the pandemic response.

Still, he said the sector will face a torrid time in an environment with limited confidence for spending on durable goods and capital investment, combined with a "vicious global recession."

The PMI employment sub-index reflected that pessimism, dropping to 39.4 from 41.1 in April. Ebert said the sister services index in April also pointed to a softer jobs market, especially as the Government's multi-billion dollar wage subsidy ends.

Ministry of Social Development data show 17,178 manufacturing firms had received support up to May 15, with $1.13 billion paid in wage subsidies and leave payment support to help cover 164,430 workers.

The PMI also showed a split across sectors, with food, beverage and tobacco – much of which was deemed an essential service through the lockdown – reporting a reading of 52.5. Wood and paper products bounced back to 54.5 from 16.3 in April. Textile, clothing and footwear products reported a reading of 19.

Catherine Beard, executive director at ManufacturingNZ, said the survey showed signs of recovery from the low base in April, on the back of increased production and new orders. Those sub-indices reported readings of 38.4 and 40 respectively, up from 19.1 and 16.9 in April.

"With the wage subsidy to end soon for many businesses, a soft employment result in the months ahead may make the road to recovery that bit longer," she said.