Some new orders, but manufacturing marks time

BUSINESSDESK: New Zealand's manufacturing sector fell in June, shedding last month's gains, though activity continued to expand.

The BNZ-BusinessNZ Performance of Manufacturing Index fell a seasonally adjusted 5.6 points to 50.2 in June from a month earlier. That is the lowest June reading since 2009. A reading of 50 separates a contraction from an expansion.

Four of the five of the sub-indexes fell, led by production which dropped 8 points to 50.8 and new orders which sank 6 points to 51.2.

Employment slipped into contraction on 48.9 points, followed by deliveries down 5.5 points to 46.5. That is its lowest level since October last year.

Finished stocks was little changed at 50.3 points.

"Being close to the breakeven 50 mark, June's result indicates an industry marking time following May's expansion," Bank of New Zealand economist Doug Steel said in his report.

"We are certainly of the view that an improving domestic construction sector, ongoing international market challenges and generally high currency will be some of the important macroeconomic influences for the manufacturing sector to roll with."

Among the sub-groups, the standouts were metal production manufacturing and machinery, up 3.2 points to 55.9.

"Both industries' PMI were driven be new orders and production and may reflect the beginning of some traction in the long-anticipated improvement of domestic construction," Mr Steel said.

"We anticipate a strong pick up in construction ahead – residential building consents are now well off their lows."

Activity in machinery and equipment manufacturing, petroleum, coal, chemical and associated products, tobacco, food and beverages all contracted in June.

The proportion of negative comments rose to 48.9% from 44.9%.

"Those providing negative comments tended to use general descriptors such as sluggish, slow and flat, while positive comments continued to mention Australia as a prime export market, while for others it was business as usual," Steel said.

Globally, the JPMorgan Global Manufacturing PMI stood at 48.9 in June. That is the first time it has contracted since November.