Manufacturing activity lifts as Christmas approaches

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The level of expansion in the manufacturing sector for October was at its highest since May 2006, according to the Business NZ Performance of Manufacturing Index (PMI).

At 56.9, October’s seasonally adjusted PMI was up 1.8 points from September, indicating a solid period of activity in the sector (the average PMI value since the survey began is 54.5).

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for October in the years 2002-2006 ranged from 46.1 to 61.6. The 2007 result was the third highest October value, with those in 2002 and 2003 showing stronger activity.

Business NZ chief executive Phil O’Reilly says the October result is another indication manufacturers have been making steady progress in the face of challenging issues such as fluctuations in the exchange rate, labour shortages and competition from imports.

“After a recent reprieve in the exchange rate, the dollar has again climbed part-way to levels last seen in August against most major currencies, with Australia being an exception.

“Given that our closest economic neighbours are often the first port of call for those looking to export; the continued drop of the New Zealand dollar against the Australian dollar may improve export opportunities across the Tasman in the months ahead,” says Mr O’Reilly.

“It’s important businesses keep looking for opportunities to export, given the noticeable levelling-off in manufacturing export value trends and with the basic manufacturing sector (BMS) and the elaborately transformed manufacturing (ETM) sector both experiencing a subdued period in export values after three years of solid growth.

“On a positive note, various firms have found demand to be steady and are building up their stock levels for Christmas,” he says.

All five seasonally adjusted main diffusion indices again recorded expansion for the current month. Deliveries (59.7) exhibited the strongest level of expansion since 2004, followed by new orders (58.0).

Results for the various manufacturing industries were almost all positive for October. The petroleum, coal, chemical & associated product sector (72.6) continued to exhibit strong expansion (due to high production, new orders and deliveries), with the highest activity recorded since November 2004. The food, beverage & tobacco (64.5) and wood & paper product (60.9) sectors also experienced strong expansion, while the textile, clothing, footwear & leather sector (49.5) was close to no change.

Unadjusted activity for October showed expansion in all regions, with three of the four regions recording values 60.0 and over. The Otago/Southland region (65.7) continued to lead the regional results, although slightly down on the previous months’ activity level. The Northern region (62.3) recorded its highest value since November 2006, while the Canterbury/Westland region (60.0) continued a series of healthy results. The Central region (56.6) showed the lowest level of activity for October, but was still up on the September result.