New Zealand manufacturing activity slowed for a second month in March to the lowest level in five months although it remains above its longer term average.

The BNZ-BusinessNZ performance of manufacturing index fell to a seasonally adjusted 54.7 last month, from 55.9 in February and a 15-month high of 57.9 in January. A reading of 50 separates expansion from contraction

New Zealand's manufacturing sector has been expanding since October 2012. While the measure slid in the latest reading, it has returned to around the average set in 2015, and remains "comfortably above" the 53 longer term average for the index, BNZ said.

"A slowdown for sure, but it would have to extend quite a bit further before it became a genuine growth worry," Bank of New Zealand senior economist Doug Steel said in his report. "After all, January set a fair blistering pace, so we should not necessarily be alarmed by a slowdown from there."

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Still, Steel said he is monitoring lower employment and relatively high inventory readings.

The employment measure fell to 48.6 in March from 48.8 in February, the second month of contraction and in line with weaker manufacturers' employment intentions in the New Zealand Institute of Economic Research's latest quarterly survey of business opinion.

"This situation might reflect lower confidence to employ given, say, renewed concerns about trading partner growth, while satisfying demand from existing plant," Steel said. "If so, employment may well bounce back if demand growth remains strong."

The PMI showed the measure of production slipped to 55 in March from 56.5 in February, while new orders sank to 58.2 from 60.7, finished stocks slid to 55.5 from 57.2, and deliveries fell to 52.6 from 56.

Steel noted that New Zealand's PMI stands "head and shoulders" above similar indicators from major economies around the world. However he said Australia moved ahead of New Zealand in the latest period, following several years where New Zealand outpaced its larger rival.

"The 3.4 index point gap in March is the largest in Australia's favour since mid-2010," Steel said. "This is not necessarily a bad thing. Indeed, it might well be a good thing for New Zealand if it indicates a growth pickup in the Australian economy as a whole."

Australia is New Zealand's second largest goods export market after China, taking $8.39 billion of products in the year through February, behind the $8.77 billion of goods sent to China.