New Zealand’s manufacturing PMI eases for second straight month in August

The manufacturing sector of New Zealand expanded at a slower pace during the month of August, the second consecutive month of decline’ however, it remained well above the 50-point mark that separates expansion from contraction.

The Business NZ performance of manufacturing index (PMI) weakened to 55.1 in August, compared to a reading of 55.8 in July, data released by a survey showed Thursday. A level above 50 signifies growth in economic activity, whereas a reading below that level points to contraction.

Further, building consents have shown extreme volatility in recent months, spiking 22 percent in June and plunging 10.5 percent in July. The sector accounts for about 12 percent of the country’s gross domestic product and has remained in an expansionary mode for more than three years in the past. A booming construction sector has supported the growth of the economy.

Trading volumes were thin as the Chinese market will remain closed today on account of Mid-Autumn Festival. The RBNZ is set to meet next Thursday, and we foresee that the central bank will keep its official cash rate on hold at 2.00 percent, but continue to signal that a rate cut is likely in November. If inflation fails to improve over the coming months, the country’s apex bank may ease rate to 1.5 percent further before December.

Meanwhile, the yield on the benchmark 10-year bond, which moves inversely to its price, remained steady at 2.555 percent, the yield on 7-year note also ended flat at 2.210 percent and the yield on short-term 2-year note dipped 1-1/2 basis points to 1.950 percent, while the benchmark S&P/NZX50 Index closed down 14.48 points to 7,196.24.