Manufacturing drops the ball

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After six consecutive months of expansion, manufacturing activity fell into contraction during October, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for October was 46.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was down from 50.5 in September, along with an average result of 52.0 for the first ten months of 2011.

BusinessNZ’s executive director for manufacturing Catherine Beard said that while the level of expansion had been slowly slipping in recent months, the sudden drop in October probably caught everyone by surprise.

“In general, results from the end of 2009 through to last month had been relatively unspectacular but solid. Instead, the result for October reminds us of the rough patch manufacturing went through during most of 2008 and 2009. In terms of specific reasons for the fall, manufacturers in the Northern region experienced ongoing falls in production, while overall activity in the Canterbury/Westland region dropped considerably after three strong months.

“At the same time it is also important that we do not read too much into the results of one month. While some comments from manufacturers highlighted low demand and confidence, others mentioned that business dropped off as soon as the Ruby World Cup began. With Xmas approaching and the World Cup over, November may yet show a return to business as usual for many manufacturers.”

BNZ senior economist Craig Ebert said it’s very hard to tell if this latest PMI result indicates a genuine stalling or just another big bump in the road to recovery.

“The October results have been distorted by the Rugby World Cup causing distraction, expenditure switching and even delaying school holidays. Also, the construction market has ebbed but there is a clear suggestion that a base is forming and a turning point is budding.

“While the two aforementioned themes may prove transitory, there is simmering concern about export markets and what is happening in Europe.”

All five seasonally adjusted main diffusion indices were in decline during October, with finished stocks (45.2) recording the lowest result. Employment (48.6) was the least affected by the decline, followed by new orders (47.7) and production (46.4). Deliveries (46.1) experienced its second consecutive decline in activity.

Unadjusted results by region showed that the decrease in overall activity was mainly due to the further slump in the Northern region (46.6), which recorded its lowest result since January 2010. The Canterbury/Westland region (48.7) also fell into decline after five consecutive months in expansion, while the Central region (52.7) remained in expansion despite a slight dip. The Otago/Southland region (60.8) produced another strong and consistent result with its third consecutive value over 60.0.

For media comment:
Catherine Beard 04 496 6560 or 0274 633 212


PMl results are available on www.businessnz.org.nz under ‘PMI Reports’. For more information or assistance with data interpretation, contact Stephen Summers, ph 04 496 6564, ssummers@businessnz.org.nz. The BNZ - BusinessNZ PMI (performance of manufacturing index) draws on the depth of member companies associated with BusinessNZ: Employers and Manufacturers Association, Employers’ Chamber of Commerce Central, Canterbury Employers’ Chamber of Commerce and Otago Southland Employers Association. The survey is sponsored by Bank of New Zealand Ltd.