NZ Manufacturing PMI Slips to 49.9 as Fuel Costs, Demand Weigh

New Zealand's manufacturing sector contracted in May, with the BNZ-BusinessNZ PMI slipping to 49.9 from 50.4 in April. BusinessNZ cited weak customer demand and high fuel costs. The Middle East conflict added to industry pressures. The reading is below the long-term average of 52.5 and marks a third straight monthly decline from a recent high of 52.8 in March.

Sub-indexes painted a mixed picture. Firms continued building stocks of finished goods (53.8) and getting deliveries out (51.9). Production and new orders both hovered close to the neutral 50 mark, pointing to flat activity rather than a sharp deterioration. Employment was also near 50, reinforcing the sense of stagnation.

The divergence by firm size was wide. Micro-firms with up to 10 employees struggled the most, posting a sub-index of 46.0. Large firms with more than 101 employees, in contrast, performed strongly at 57.6. The gap points to an uneven sector recovery, not broad-based weakness.

BNZ economist Stephen Toplis said the sector will likely move through a flat patch over winter. He added that, with Middle East developments permitting, the broader economy should regain some momentum towards the end of the year, and manufacturing should keep pace with that recovery.

The modest size of the contraction and BNZ's expectation of a pickup later in the year limit the direct read-through for Reserve Bank of New Zealand rate decisions. The split between struggling micro-firms and resilient large firms also implies the weakness is uneven rather than broad-based.