New Zealand's manufacturing activity expanded in May, reaching the highest value since January 2016 and boding well for second-quarter economic growth.

The Bank of New Zealand-BusinessNZ performance of manufacturing index was a seasonally adjusted 58.5 in May, 1.6 points higher than in April when it was 56.9. A reading of 50 separates expansion from contraction.

New Zealand's manufacturing sector has remained in expansion in almost every month since October 2012, buoyed by a construction boom that started in the post-earthquakes Christchurch rebuild and has extended to Auckland's housing market.

"Positivity is prevalent throughout the May survey, across the major components of production, new orders and employment, as well as across firm sizes, industries, and regions. It sets up the manufacturing sector to make a strong positive contribution to Q2 GDP growth," said BNZ senior economist Doug Steel.


On Thursday Stats NZ said the economy only expanded 0.5 per cent in the three months ended March 31 as building activity and investment shrank. Economists had been expecting growth of 0.7 per cent. Manufacturing production, however, grew 1 per cent in the quarter and was 2.1 per cent higher than a year earlier.

Today's figures show the PMI's production sub-index rose to 59.7 in May versus 57.0 in April. Employment rose to 55.3 from 53.1 in the prior month. New orders eased to 61.2 from 62.0 while finished stocks inched up to 54.7 from 54.0 and deliveries rose to 58.1 from 54.9.

While new orders eased slightly, they remained above the 60-point range and marked the highest three-monthly level of expansion for that sub-index since 2004.

Steel said the recent strength in the PMI's new orders index bodes well for a further lift in annual growth in core manufacturing sales through the middle of 2017 and the recent strength of the PMI employment index - with its three month average at 54.0 - indicates a strong pickup in jobs in the manufacturing sector in 2017.