Manufacturing activity not out of the woods yet

The month of July saw the manufacturing sector flattened out after ten consecutive months of expansion, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for July stood at 49.9, which was down 6 points from June (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). Unadjusted regional activity was in contraction in all regions apart from the Central region (56.0) and there was contraction in new orders (47.6) and deliveries (49.5).

BusinessNZ’s executive director for manufacturing Catherine Beard said that the results show a softening of activity from the New Zealand manufacturing sector after 10 consecutive months of solid and steady expansion.

“The turnaround from expansion to contraction this month reflects a bumpy road back to recovery, with manufacturers indicating they can have a good few months and then orders suddenly slow down again. While some of the indices are continuing to head in the right direction (production, employment, and finished stock) they are probably lagging the reported reduction in new orders, which is what really drives the other indices into positive or negative territory.”

“These results are consistent with the overseas manufacturing indices which despite still being in expansion are showing a softening of growth from the highs reached in April this year.”

Bank of New Zealand senior economist Craig Ebert said the slump in July’s PMI is a bolt from the blue and a material disappointment.

“We were looking for this sector to keep lending a firm hand to the economic recovery. We don’t however, believe this latest result necessarily signals the death knell for the NZ economic recovery or the manufacturing sector.

“The real question that needs answering is whether an underlying recovery is still in train, such that the economy will be looking stronger next year compared to now. We still believe it will.

“As bad as July’s NZ PMI looked, it was caused by a few devilish details rather than across the board loss of momentum. Even from an international perspective, July’s global PMI, while down to a one-year low, was still a respectable 55.4 and miles away from the capitulation we saw in the downturn of 2008/9.”

Three of the five of the seasonally adjusted main diffusion indices were in expansion, though slightly softer than June with employment (52.5) down 0.2 points, production (52.1) down 3 points and finished stocks (52.6) down 1.8 points. New orders (47.6) were in contraction, down 9.8 points from June, while deliveries (49.5) were also in contraction, down 6.8 points on June.

Click here to view the July PMI
Click here to view the time series data