Manufacturing survey at highest level in nearly a year

A measure of manufacturing activity is at its highest level in nearly a year, with the part of the country which includes earthquake-hit Christchurch leading the way.

The BNZ-BusinessNZ seasonally adjusted performance of manufacturing index (PMI) rose 2.7 points from April to 54.7 last month, the highest level since June 2010.

A PMI reading above 50 points indicates manufacturing activity is expanding.

Unadjusted results by region show Canterbury- Westland at 57.7, the highest value since last November. The Central area was at 57.1, and Northern at 52.3, but Otago/Southland remained in contraction for the fourth consecutive month with a reading of 45.3.

BNZ economist Doug Steel said some manufacturers were clearly seeing rapid growth.

Comments from respondents to the survey included: "May was a huge month", "A new all time record", and "Huge influx of work in May".

But a general concern continued about the strength of the New Zealand dollar, with one respondent commenting "Exchange rate killing exports".

Plenty of concern also remained about other factors such as the Christchurch earthquakes, weakness in the construction sector, poor cashflows, and overdue debtors, Mr Steel said.

The sustainability of any pick up in production depended on ongoing new orders and improvement in underlying demand.

It was not clear what had driven new orders higher -- to a seasonally adjusted reading of 56.7 -- in May.

Mr Steel questioned whether retail sales might have been stronger than expected, with data suggesting improving retail demand seeming to have extended through to May, and further strengthening likely given improvements in consumer confidence noted this month.

The improving domestic demand indicators boded well for manufacturers' new orders and further recovery in the sector, he said.

Exports, despite some pockets of strength, did not appear to be a widespread and direct driver of manufacturers' new orders.

But the PMI results were further evidence that strong primary industry revenues were starting to filter through to other parts of the economy, with many survey respondents mentioning the rural sector as a major influence on their business.

Other sub-index readings, along with new orders, included production at a seasonally adjusted 55.2, employment at 50.8, finished stocks at 49.3, and deliveries at 57.6.