Manufacturing still flat in October, though small green shoots

October saw little change from September regarding activity in manufacturing, as the sector remains fairly static and still not quite able to get into expansionary territory, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for September stood at 49.7, a slight improvement on September’s result (49.5) but not much of a movement (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining).  This is the third consecutive month sitting on 49, though on the positive side there are now three of the five indices, employment, new orders and deliveries sitting at just over 50.

BusinessNZ’s executive director for manufacturing Catherine Beard said that while the flat patch has gone on now for three months, having new orders and employment slightly on the expansion side of the ledger is a positive indicator that New Zealand manufacturing might be able to turn the corner soon.

“Those making positive comments in the survey seem to be those that are focused on exporting to the Australian market or have some seasonal things going their way.” 

“In terms of how we are tracking against other manufacturing countries, Australia is also flat in October on 49.4, with the high Australian dollar and weakness in new orders creating challenges.  The JP Morgan Global Manufacturing PMI is now showing expansion (53.7) with the US and China hitting five and nine month highs respectively.”

BNZ economist Doug Steel said there were good bits and bad bits to October’s results, which broadly net each other to continue the plateau of recent months.

“The bad bits seem centred on the here and now, most noticeably in production. The housing market also remains soft and the effects of the earthquake have kicked in. Canterbury/Westland was the only region where the PMI came in below 50.”

“The good bits were concentrated on new orders and employment. There were also pockets of positivity regarding exports, but external demand conditions are still far from uniform. Respondents’ remarks cover the full spectrum of perspectives. Of those that mentioned particular markets, there was a general positive Asia/Australia and negative US/Europe theme, which is in line with the present lopped-sidedness of global economic growth.”  

Of the five seasonally adjusted main diffusion indices, the two that remain in contraction are production (46.0) and finished stocks (49.9), though it is hopeful that the slight expansion in new orders, employment and deliveries are signs manufacturing is turning the corner.

Unadjusted results by region showed some change in activity levels for most regions.  All the regions were in expansion apart from Canterbury/Westland (49.5) down 3.3 points from last month.  Of those in expansion, the Central region improved the most (7.1 points) to land on 54.8.  Otago/Southland was a close second improving 6.3 points to land on 53.7.   Northern region went ahead 2.6 points to reach 56.3.