Manufacturing activity declines in March

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New Zealand’s manufacturing sector experienced a decline in overall activity in March – the first decline in more than two years – according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for March stood at 48.3, which is 3.5 points lower than the February result. This is the first time the seasonally adjusted result has been in decline since January 2006 and is the lowest result since November 2005. It is also 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 March in the years 2002-2007 have ranged from 51.7-59.1, meaning the latest result is the first time manufacturing has been in decline for that month.

Business NZ chief executive Phil O’Reilly says the March result highlights a lacklustre first quarter of activity for New Zealand’s manufacturing sector.

“Results for the first quarter of 2008 have averaged out to 51.0, which is the lowest score for the start of any year of the survey. The global scene for manufacturing continues to show a slowdown for almost all countries as there is a noticeable fall off in production and new orders.”

Mr O’Reilly says comments from respondents are symptomatic of a lack of confidence in the market, with the proportion of negative comments made by respondents jumping strongly (67.3 per cent in March compared with 63.7 per cent in February). Individual comments indicate activity is falling off from both domestic and offshore customers.

“Looking out towards business possibilities for New Zealand manufacturers during the rest of 2008, it will be important they start engaging in potential markets in China to take advantage of the significant opportunities that are available now and that will become available as tariffs reduce further in the near future.”

The Bank of New Zealand noted New Zealand’s manufacturing sector now looks to be slipping, having warned it was losing momentum over recent months.

Senior market economist at the bank, Craig Ebert, says much of the concern relates to obvious factors, including the ongoing strength in the NZ dollar, cost pressure, resource constraints and, now, weakening domestic demand.

“But there is another factor well worth noting – offshore demand. It is slowing already, and will probably continue to do so for the foreseeable future.”

Unadjusted activity for February showed activity was down in all but one region. The Canterbury/Westland region (52.4) continued to show expansion although the level was still down on the previous month. The Northern (47.8) and Central regions (45.8) recorded their third and fourth consecutive declines respectively, while the Otago/Southland region (46.3) experienced its lowest result since January 2007.

Unadjusted results for the various manufacturing industries were generally in decline during March. The machinery & equipment sector (53.4) bucked the trend with the only expansion value shown for an industry, which was also a recovery from two negative results during the start of 2008. The wood & paper product sector (38.8) displayed the strongest level of decline, followed by the textile, clothing, footwear & leather sector (43.0).