Manufacturing activity climbing out of the depths – PMI

16 Jul 2009

Manufacturing activity continued to climb out of the depths of contraction with the highest overall activity level in nine months, according to the BNZ Capital - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for June stood at 46.2. This was up 3.1 points from May, and 1.2 points higher than June 2008. The last time activity was higher than June 2009 was September 2008 (46.5).

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for June in the years 2003-2008 ranged from 45.0 and 62.8, with an average score for the previous June results of 53.4.

BusinessNZ chief executive Phil O'Reilly said that there were various aspects of the June result that may point towards a stronger second half of the year for New Zealand's manufacturing sector.

"New orders, which provides a future indicator of production, was positive for the first time since April 2008, while production was also at its highest level for nearly a year. Also, the New Zealand June result and time series bears a close resemblance to overall manufacturing offshore, with the JP Morgan Global Manufacturing PMI at 46.9, and a similar V-shaped recovery from historic lows. However, the extent of any march into overall expansion will depend on the continued strength of new orders. Employment is still struggling both here and offshore, and may be the last indicator to head towards the path to recovery.

BNZ Capital Senior Economist Craig Ebert said the fact that the new orders sub-index had made it into expansion territory was encouraging.

"There are increasing signs the sector is beginning to see some light at the end of the tunnel. Of course, it's still a long, dark tunnel. But the big jump in the new orders index gives hope of some locomotion in activity before too much longer," Mr Ebert said.

Four of the five seasonally adjusted main diffusion indices continued to display contraction, with three of the five showing a worse level of contraction than in May. However, the two key indicators of production (47.6) and new orders (52.2) rose 5.6 and 10.6 points respectively. The significant increase in new orders was in fact the largest month-to-month increase in the history of the survey, surpassing the 9.4 point lift between May and June 2004. Employment (40.1) continued to slide backwards, while deliveries of raw materials (42.5) experienced only a small drop from May. Finished stocks (43.9) decreased another 1.3 points from May to reach a second consecutive new low since the survey began.

Unadjusted activity for June showed more positive signs for the South Island. The Canterbury/Westland region (48.8) experienced its third consecutive lift in activity, reaching its highest level since December 2008. The Otago/Southland region (48.8) recovered from the sub-40 result in May, and also posted its highest figure since December 2008. For the North Island, the Northern region (41.7) dipped back to the level experienced in March, while the Central region (44.7) improved from the 36.1 result in May.

Click here to view the June PMI
Click here to view the PMI time series data

Media contact: Phil O'Reilly 04 4966552 or Stephanie Moakes 04 4966554, Craig Ebert 04 4746799

For more information or assistance with data interpretation, contact Stephen Summers, ph 04 496 6564, ssummers@businessnz.org.nz.


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