Weaker production and new orders slow manufacturing recovery

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A lower result for both production and new orders meant activity fell back for August, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August stood at 48.7. This was down 0.9 points from July, which had shown the highest level of activity since April 2008.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for August in the years 2002-2008 ranged from 45.4-57.4, with an average score for the previous August results of 52.9.

Business NZ chief executive Phil O’Reilly said that the slight fall in August was disappointing after steady improvements throughout most of 2009, and in particular some stronger upwards movement over the last two months.

“July’s result was the closest one to expansion since April 2008, so a positive result for August would have broken a long drought for New Zealand’s manufacturing sector. However, it was not to be, with the two key indicators of production and new orders pulling back as concerns linger about the state of the general economy. On the positive side, employment was at its highest level since May 2008 - a sharp improvement from one of its lowest results in June.

“Since the July PMI the New Zealand dollar has continued to appreciate, although the proportion of comments from respondents regarding exchange rate issues is still nowhere near levels recorded in 2007/2008. General concerns remain focussed on the general economic climate having flow-on effects into their business, as well as an orders/sales base that is still largely soft and unpredictable.

BNZ Capital senior economist Craig Ebert said the slippage in August is a timely note of caution – as while they expected a mild economic recovery around this time, the shape of the recovery remains uncertain.

“To be fair, this downfall has come amid the worst global economic performance in many a decade and more so in respect to trade and manufacturing. In this respect, New Zealand can be especially thankful it’s not a producer of vehicles.”

Four of the five seasonally adjusted main diffusion indices displayed contraction. Production (48.8) went back to showing contraction after moving into positive territory in July. New orders (50.3) remained above 50 for the third successive month, although down from the July result. Encouragingly, employment (46.9) reached its highest level since May 2008, and a significant improvement on the 39.5 recorded two months earlier. Deliveries of raw materials (48.0) experienced further improvement (albeit at a minimal level), while finished stocks (48.7) rose 6 points to its highest result since February 2009.

Unadjusted activity for August showed a similar pattern to July for most regions. Activity in the Northern region (47.3) was largely unchanged, down 0.1 points from July. Both the Central (52.3) and Canterbury/Westland (56.4) regions remained in expansion, with the former decreasing 0.4 points and the later rising 1.5 points. The Otago/Southland region (48.2) continued to seesaw in terms of the level of contraction.

Click here to view the August PMI.
Click here to view the Time Series Data.

For media comment:
Kathryn Asare, ph 04 496 6556 or 021 555 744
Craig Ebert, ph 04 474 6799

PMl results are available on www.businessnz.org.nz under ‘PMI Reports’. For more information or assistance with data interpretation, contact Stephen Summers, ph 04 4966564, ssummers@businessnz.org.nz. The BNZ Capital - Business NZ PMI (performance of manufacturing index) draws on the depth of member companies associated with Business NZ: Employers and Manufacturers Association (Northern), Employers and Manufacturers Association (Central), Canterbury Employers’ Chamber of Commerce and Otago Southland Employers Association. The survey is sponsored by Bank of New Zealand Ltd.