Manufacturing activity continues sluggish run

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Despite a slight improvement in April, the New Zealand manufacturing sector continues to display sluggish behaviour, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April stood at 51.4, which was 2.7 points up on the March result. While the overall change from contraction to expansion in the sector was encouraging, it was still the second lowest result since June 2007, and well below the average PMI value of 54.4 since the survey began in 2002.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for April in the years 2002-2007 ranged from 51.9-58.8, meaning the latest result was the lowest recorded for an April month.

Business NZ chief executive Phil O’Reilly said that although it was good to see the April result in positive territory, it was important to look beyond the national result to the unadjusted figures.

“While the seasonally adjusted result is positive, the unadjusted figure is still negative, and at its lowest level in more than two years. Added to that, some of New Zealand’s main manufacturing powerhouses – Canterbury/Westland and the Northern regions – indicate a level of contraction not seen since 2006. Then there’s, the Central region, which has now been in decline for five months straight.

Mr O’Reilly said many manufacturers were continuing to operate in difficult conditions concerning the New Zealand dollar; however other comments from respondents have centred on a more broad view that the sector is generally slowing, as there is a lack of confidence in the market meaning many are cautious before signing large orders for goods.

“The fact that 70 per cent of respondents now think of only negative influences on their own activity over the last three months indicates a difficult period for businesses to grow.”

The Bank of New Zealand said although the unadjusted results were still in decline, there were broader reasons the sector should hang in there.

Senior markets economist at the bank Craig Ebert said it was important to bear in mind the current rebalancing of the economy.

“This presents as many opportunities as headwinds for manufacturing. The trick is to recognise these and reconfigure as best one can.”

Unadjusted results for April showed activity was down in all but one region. The Canterbury/Westland region (46.4) recorded its first decline in activity since July 2006, while the Northern region (46.8) was at its lowest level since February 2006. The Central region (47.7) remains in negative territory with its fifth consecutive decline. In comparison, the Otago/Southland region (52.6) displayed the only expansion, although well below the strong results recorded towards the end of 2007.

Unadjusted results for the various manufacturing industries were again generally in decline during April. The machinery & equipment sector (52.9) continued to buck the trend with its second straight expansion. The wood & paper product sector (39.9) displayed the strongest level of decline, which was very similar to the result for March.