NZ manufacturing index rises to 5 and a half year high

The Business New Zealand/BNZ Performance of Manufacturing Index (PMI) showed the sector expanded in April at its strongest rate in any one month since December 2004 and had its best April in 6 years. The index rose 2.2 points to 58.9, with any reading over 50 denoting an expansion. The strong result comes less than a month before the Reserve Bank's next Official Cash Rate decision on June 10. It is widely expected to start increasing the OCR by 25 basis points at a time from June 10. The NZ dollar nudged up to 71.5 USc after the PMI was released. "The manufacturing sector recovery is in full swing," BNZ economist Doug Steel said. "Following relatively modest steps out of recession in late 2009 and early 2010, larger strides forward have been taken in March and April," he said. "What a difference a year can make. The detail of the PMI shows a marked turnaround from the truly terrible trading conditions of 12 months ago. Encouragingly, this improvement is widespread occurring across all components, industries, regions and firm-size categories." The manufacturing sector was performing much better than the consumer sector, BNZ said. "The advancing manufacturing sector will help offset patchiness or even outright weakness in some other parts of the economy," Steel said. "Falling house sales, dropping non-residential building consents, a weak rural property market and easing net migration are clear indicators that recovery is not yet economy wide. Not to mention the immediate and downstream negative impact of drought on the agriculture and related sectors. Or, from a looking forward perspective, how the sovereign debt crisis in Europe will ultimately play out," he said. "Meanwhile, consumers remain cautious even though retail sales data for March, released tomorrow, will likely show a very strong gain in the month, bouncing from a soft February. Even with strong sales in the month of March, sales volumes for Q1 are expected to be sluggish. "Moreover, a slump in the value of electronic transactions in April suggests consumer spending continues to lag the recovery and certainly continues to disappoint given the high level of consumer confidence. Despite the variation across sectors, the economic recovery remains on track. The lagged impact from low interest rates continues to filter through. "Elevated levels of business and consumer confidence continue to promise better times ahead and the income pulse from record high commodity export prices should not be underestimated."