Manufacturing expansion highest in 28 months

New Zealand manufacturing continues to head in the right direction with a strong boost in expansion for March, according to the BNZ - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for March stood at 56.3. This was up 2.7 points from February and the highest level of overall activity since November 2007.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. The March 2010 result was also the third highest March value since the survey began in 2002, with the only the 2004 and 2007 figures displaying stronger growth.

Business NZ’s executive director for manufacturing Catherine Beard said that the New Zealand results fit well with the global scene of manufacturing, with the JP Morgan Global PMI almost identical to the New Zealand result, as well as showing levels of expansion not seen for some time. However, it was still important to remember that ongoing solid results are required to catch up what has been lost over 2008/2009.

“While the pick up in positive comments in the PMI is encouraging, as part of day-to-day discussions members are still reporting a wide range of conditions depending on their sector and whether they are domestically focussed or also exporting. At best, any “recovery” is seen as patchy, and there remains considerable uncertainty, although there is a general air of optimism for further pickup in the second half of 2010 and beyond.

“After six months of solid, if not spectacular expansion, we have now reached a phase where monthly results are consistent, and new orders continue to drive activity, which we would hope will flow through to increasing employment if the trend continues.”

Bank of New Zealand economist Doug Steel said the strength of the Australian economy and higher interest rates, which have seen the Australian dollar well bid against the Kiwi dollar, are helping drive our recovery.

“This provides a win-win for NZ manufacturers supplying the Australian market. Higher incomes breed an expanding market and the lower NZ dollar helps make Kiwi products more competitive against their Australian equivalents.

“However we need to be mindful of the risks associated with increasing dependence on effectively one market, especially in light of the China-driven commodity boom.”

All five seasonally adjusted main diffusion indices remained in expansion – the first consecutive expansion across all main indices since the end of 2007. Production (59.4) was the highest value, with levels not seen since August 2007. New orders (56.9) remained healthy, with the last five values for the index within a tight band.

Unadjusted results by region showed most in expansion during March. This was again led by the Canterbury region (58.6), which experienced a slight dip from February. Both the Northern (57.8) and Otago/Southland (57.5) regions experienced similar levels of expansion, with both at their highest level since November 2009. While the Central region (49.0) remains in contraction, the March result was an improvement on February.


Click here to view the March PMI.
Click here to view Time Series data