Manufacturing declined further in February

Last month manufacturing declined to its second lowest level on record.[1]

The BNZ Capital - Business NZ Performance of Manufacturing Index (PMI) for February was 38.6. This was 3.2 points down from January, and 13.5 points lower than February 2008.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for February in the years 2003-2008 ranged from 51.7 and 56.7, with an average score for the previous February results of 54.2.

Business NZ chief executive Phil O’Reilly said the February result had been weighed down by falls in production and new orders and the lowest recorded result for employment.

“A significant increase in the number of negative comments received by the survey indicates that three out of every four manufacturers are experiencing negative influences on their business.

“Offshore results are also indicating that the bottom of the activity cycle might be lower than first thought, which could mean 2009 will prove worse than 2008 for many manufacturers.”

Bank of New Zealand Senior Economist Craig Ebert said while the PMI results looked grim, the latest export figures gave some room for hope. He said the December quarter Overseas Trade Indexes released yesterday, while showing weaker volumes also showed a 3% increase in non-food manufactured exports.

“This highlights the benefit that some exporters are getting from the sharply lowered New Zealand dollar,” Mr Ebert said.

“However those manufacturers who import components are facing ongoing cost pressures. This is hard for many to absorb at a time when demand is withering.”

All five seasonally adjusted main diffusion indexes were again in contraction, with most displaying near record lows. Production (33.5) posted its second lowest result, edging closer to the November 2008 (29.0) value. New orders (38.3) slipped back to a sub-40 result, while employment (39.5) fell to its lowest ever figure. Finished stocks (49.2) remained close to no change, while deliveries of raw materials (40.6) exhibited its second worst outcome.

Unadjusted activity for February showed continued weakening in activity throughout the country. In the North Island, the Northern region (33.2) slipped in activity for the sixth consecutive time, while the Central region (38.7) posted its first sub-40 result. In the South Island, there was a slight improvement for the Canterbury/Westland region (41.5), albeit off a substantial drop in January. The Otago/Southland region (44.5) continued to slip further, recording its lowest result since January 2007.