Manufacturing activity continues to contract

Manufacturing activity got off to a poor start in 2009 with continued contraction in the sector, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for January was 42.0, down 0.5 points down from December, and 10.8 points lower than January 2008. The January 2009 result was the second lowest monthly result on record, as well as the ninth consecutive month in which the sector has been in decline.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for January in the years 2003-2008 ranged from 48.3 and 56.8, with an average score for the previous December results of 54.2.

Business NZ chief executive Phil O’Reilly said that the poor start to 2009 for manufacturing was of little surprise given the consistency of low results during 2008.

“The overall picture that the PMI conveys at present is one of ongoing tough times for manufacturers. While the seasonally adjusted result is the second lowest on record, the unadjusted result went below 40 for the first time since the survey began. The ongoing weakness in production and new orders also remains a primary concern for future manufacturing activity levels, and we would hope that some relief by way of the current level of the New Zealand dollar against our major trading partners will help boost new orders from offshore over the next few months.

Bank of New Zealand Markets Economist Mark Walton said the results were consistent with other indicators of the ongoing downturn. "Despite relatively high levels of agricultural processing, January's survey clearly shows that the trading environment for New Zealand manufacturers is still very weak,” Mr Walton said.

All five seasonally adjusted main diffusion indices were in contraction, with most displaying worse results than the previous month. Production (39.3) posted its second sub-40 result, while new orders (40.8) slipped back from an improved result in December. Employment (43.6) continued to show some lift in its value, but still showing significant contraction. Finished stocks (48.8) fell back from a small level of expansion, while deliveries of raw materials (41.9) exhibited its second worst outcome.

Unadjusted activity for January showed weakness in activity throughout the country. In the North Island, the Northern region (34.4) slipped in activity for the fifth consecutive time, while the Central region (40.7) also fell back to record its lowest ever result. In the South Island, there was a substantial drop for the Canterbury/Westland region (36.8), while the Otago/Southland region (48.4) went from slight expansion to decline in January, after four months of slight-moderate expansion.

Click here to view the January PMI.

For media comment: Kathryn Asare, ph 04 496 6556 or 021 555 744.