New Zealand manufacturing activity fell for a second consecutive month in May to the lowest level in 17 months, with a decline in new orders and a rise in inventory suggesting demand is waning.
The BNZ-Business NZ seasonally adjusted performance of manufacturing index fell to 52.7 in May from a downwardly revised 54.4 in April, and 57.6 in May last year. A reading above 50 indicates expansion in the sector.
The measure of new orders dipped to its lowest since December 2012 while inventories rose to the highest level since August 2013, pushing down BNZ's inventory-to-orders index to 49 from 64.6 at the end of last year.
"It represents a pronounced loss of momentum and so warrants some attention," Bank of New Zealand senior economist Craig Ebert said in a note. "The lower tone in the latest PMI might be providing more evidence that GDP growth, at least for the moment, is not accelerating as rapidly as some other business surveys have suggested as a 6-to12-month ahead proposition."
Still, BNZ is maintaining its forecast for GDP growth of around 4 percent this year, slowing to 3.4 percent next year, Ebert said.
Slowing growth won't come as a surprise to the Reserve Bank, which yesterday raised its benchmark interest rate for a third time, Ebert said.
"Without some sort of slowdown, inflation will pick up by more than the RBNZ already assumes," he said.
All five seasonally adjusted main diffusion indices were in expansion during May. Production was unchanged from April at 55.2, while employment contracted to 53.8 from 54.3, finished stocks rose to 52.6 from 49.8 and deliveries dropped for a fourth consecutive month to 51.4 from 54.8. New orders dropped to 51.6 from 54.6.
Three of the four regions across New Zealand were in expansion during the month, led by the Northern region which jumped to 57.4 from 53 in April. The Central region rose to 56.4 from 51.3 while Canterbury/Westland gained to 56.7 from 50.1. Meantime, Otago-Southland posted its first decline in activity since April 2013, falling into contraction at 48.1 from 57.7.