Road to recovery – PMI

12 Jun 2020

39.7

May

+13.8

Monthly Change

contracting

slower rate

New Zealand's manufacturing sector showed some signs of recovery, albeit off a very low base, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for May was 39.7 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was up 13.8 points from April, and higher than the level of activity recorded in March.

BusinessNZ's executive director for manufacturing Catherine Beard said that given half of May was at alert level 2, this provided firms with a greater ability to boost production and new orders, which was seen in those two sub-indices showing the strongest increases from the previous month (sitting at 38.4 and 40.0 respectively). In contrast, employment (39.4) took another hit. 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.

"Looking at comments, the lift in overall activity levels also saw the proportion of positive comments increase from 10.3% in April to 28.5% in May."

BNZ Senior Economist, Craig Ebert said that “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 in sank to during the 2008/09 recession."

View the Time Series Data

Main Indicies

Regional Results

The PMI

New Zealand’s Performance of Manufacturing Index (PMI) posted a rebound, of sorts, in May. At a seasonally adjusted 39.7 it was still clearly contracting, just not to the extent it was in April, when it was 25.9. That result for April, of course, traversed the most extreme period of lockdown, related to COVID-19.
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Variation in the Details

Despite its headline improvement, there was patent variation in the component detail of May’s PMI. By industry, there was a strong theme of primary industry support, with Food, Beverage & Tobacco up at 52.5, Wood and Paper bouncing to 54.5 (from 16.3 in April) and Petroleum, Chemical & Coal up to 52.8 – all unadjusted figures.
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Looking Ahead

This is not normally the forum to talk about the outlook for manufacturing, as the PMI reports on what is happening rather than what firms expect to happen. However, with New Zealand moving down to restriction level-1 on 8 June, there is clearly potential for a bit more spark to show in the June/July results.
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Employment

Perhaps this is why we’re seeing, from the PMI, signs of net job losses coming through already – despite the government’s enormous wage subsidy scheme directed at preserving jobs over the interim?
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View full BNZ Manufacturing Snapshot