High NZ$ hits manufacturing, although signs of cost containment are encouraging, BNZ says

New Zealand's manufacturing sector remained downcast in May, extending its contractionary period to 15 consecutive months (unadjusted figures), the latest BNZ Capital-Business NZ Performance of Manufacturing Index (PMI) showed. The continued rise in the New Zealand dollar was specifically ear-marked for causing increased concern for those in the sector who export their products. Unadjusted, the PMI improved slightly from April, to 42 from 40.5, although seasonally adjusted it got worse, falling from 43.7 to 42.7. A figure higher than 50 indicates expansion of activity in the sector, while a figure below 50 represents contraction of activity. There were indications of further job losses in the manufacturing sector, with the employment indicators showing further contraction in May. Unadjusted figures showed the pace of contraction for production, new orders, finished stocks and deliveries slowed in May, but seasonal adjustment showed contraction getting worse. Seasonally adjusted, activity in the sector has contracted for 13 consecutive months. "May's PMI was certainly not encouraging on demand, with its new orders sub-index slipping to 41.3. But at least the PMI was encouraging on the cost containment side, with its indications of further trimming of staff numbers, and working down of inventories," BNZ economist Craig Ebert said. "Of course, it's still a very mixed bag in the detail. It ultimately depends on what type of goods one's producing, and the relative domestic/export/import exposure one has. Not everyone is finding the going tough. But most are," he said. "And it remains a moving feast "“ or, should we say, famine "“ more generally. Just when the global activity indicators, particularly around manufacturing, look to be stabilising, the rising currency is causing another layer of concern for the local industry." Business NZ chief executive Phil O'Reilly said that while overall activity for May failed to build on the relative improvements in April, there were signs both here and offshore that any significant worsening of activity may now be less likely. "However, the recent fluctuations of the New Zealand dollar was certainly not making life easy for those exporting their products," O'Reilly said. The NZ$/US$ exchange rate has climbed from around 49 USc at the beginning of March to 63 USc currently, and almost hit 66 USc at the start of June. Reserve Bank Governor Alan Bollard expressed his concern with the rise in the NZ dollar when the Reserve Bank left the Official Cash Rate on hold at 2.5% on Thursday morning.