Long time between drinks for manufacturing activity

Expansion across most sub-indices meant overall manufacturing expanded for the first time since April 2008, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for September stood at 51.7. This was up 2.9 points from August and the first expansionary result since April 2008 (51.0). It was also the highest result since February 2008 (52.6).

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for September in the years 2002-2008 ranged from 46.1-58.6, with an average score for the previous September results of 53.3.

Business NZ chief executive Phil O’Reilly said that the first overall record of expansion represents a long time between drinks for the sector, and involved a rough ride for many businesses, particularly during the end of 2008/start of 2009.

“One swallow doesn’t make a summer. Likewise, one positive result should not mean we anticipate strong upward growth. However, there are definitely enough positive signs to give some indication that activity may at least remain somewhere in expansionary mode leading through to Xmas. New orders is strong, while employment – often the last index to show a turn in fortunes – has recovered significantly from low points throughout 2008.

“The one possible blight on the horizon is the exchange rate, with negative comments from manufacturers on this noticeably up from August. How far the New Zealand dollar keeps pushing upwards and how many international orders suffer as a consequence will determine the extent future expansion is inhibited.”

BNZ Capital economist Mark Walton warns against making generalisations about currency movements, as there are some positives for New Zealand manufacturers.

“We must remember that not all of our exporters are paid in US dollar; and the TWI masks the fact that exchange rates have moved in some exporters’ favour.

“Australia, is still growing as our biggest export market, and is leading the pack of developed countries out of the recession – with GDP growth that has remained in positive territory throughout.

“With the NZD appreciating strongly and NZD/AUD remaining fairly stable, manufacturing prospects are looking increasingly bright.”

Four of the five seasonally adjusted main diffusion indices displayed expansion. New orders (56.3) again led the way with its highest result since November 2007, while production (51.6) bounced back from a decline in August to record its highest level since April 2008. Employment (51.2) displayed positive growth for the first time since January 2008, and a significant boost on the record lows experienced throughout 2009. Deliveries of raw materials (51.1) continued to improve with expansion for the current month, while finished stocks (44.4) was the only sub-index continuing to show decline.

Unadjusted activity for September showed expansion for all regions for the first time since November 2007. Otago/Southland (58.7) led the way with a significantly improved result from the previous 8 months. The Northern region (52.8) recorded its first expansionary result since December 2007, while the Central region (50.7) dropped 1.6 points from August. The Canterbury/Westland (53.3) region also fell back from the previous month, but continued a run of three consecutive expansionary results.


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