Manufacturing activity continues to contract

New Zealand’s manufacturing sector remains in contraction for the fourth consecutive month, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August stood at 45.7, which was three points down from July, and similar to the result for June. This was the fourth consecutive month the sector has been in decline, which equals the longest period of contraction for the sector, last seen in late 2005/early 2006.

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 2002-2007 ranged from 50.7-57.6, with an average score for all months over the history of the survey standing at 53.9.

Business NZ chief executive Phil O’Reilly said the drop in activity from July to August was disappointing to see, but indicative of the negative activity range manufacturing currently finds itself in.

“While there are some encouraging aspects with the August result, namely comments around the drop in the New Zealand dollar over the last month, manufacturing production continue to struggle, while the sector has also seen a contraction in employment levels over the last seven months.

“Manufacturers are using the words ‘slow’ and ‘downturn’ to describe the current state of play. Also, the ongoing fall in global manufacturing to levels not seen in more than five years shows the growth base for international trade is becoming much smaller.”

The Bank of New Zealand’s head of research, Stephen Toplis, added that the weakness in today’s PMI flies in the face of other indicators, particularly consumer confidence, which appear to be improving.

“There’s a clear warning in these figures that, while the economy may have bottomed, there’s a lot of water to go under the bridge before the good times return.”

Three of the five seasonally adjusted main diffusion indices continued to record weakness. Production (42.3) experienced its lowest result, while new orders (44.4) returned to levels experienced n June. Employment (45.4) also recorded its lowest result, while deliveries of raw materials (50.2) experienced its first expansion since April.

Unadjusted activity for August showed all four regions in decline. For the North Island, the Northern region (48.6) continued to remain in contraction for the eighth consecutive month. The Central region (45.9) continued to remain within a fairly small range of 45-46 over the last three months. In the South Island, the Canterbury/Westland region (43.9) experienced a sharp fall in activity compared with July, while Otago/Southland (48.9) experienced its third consecutive sub-50 result.