Manufacturing index slips to a four-year low

A manufacturing performance index showed the lowest July result in four years.

The latest BNZ-Business New Zealand performance of manufacturing index has fallen just below the expansion line – it is now sitting at 49.4.

Anything above 50.0 indicates expansion in the manufacturing sector.

The latest result is down marginally on June and is the lowest July result in four years. It is the second slip below the line for manufacturing this year.

Business New Zealand manufacturing executive director Catherine Beard says the slide mirrors what is going on overseas.

She says in Australia the figure is down to 40.3, which is not the best news for manufacturers in New Zealand who rely on a strong Australian economy to prop up the trans-Tasman-biased sector.

Manufacturers here count on Australia’s economy to remain strong in order to pull them into positive territory.

BNZ senior economist Craig Ebert is not taking too much from the drop, given the index has been above 50 for much of the year.

“It just has us thinking maybe there’s a loss of momentum there. We certainly wouldn’t describe it as negative but we are just wondering whether it means things have slowed down quite a bit.

"In April, we had an index sitting down at 47.6, everybody was saying ‘here we go again into recession’ and the next month it was 55.9. So we are just going to give it a bit more time,” Mr Ebert told NBR ONLINE.

He says some concerns are around the state of international markets and the high New Zealand dollar but the sector, which is “slightly impervious” to what is going on globally, is still in good shape.

“One of the reasons is the apparent pick up in the construction sector. It would be very unusual if we saw the manufacturing sector languishing or going backwards at a time when the construction sector’s picking up.

"I think there are some lags involved as well.”

Four of the five seasonally adjusted main diffusion indices were in contraction in July. The strongest result was for new orders (52.9).

This was followed by production (49.6), which dipped into contraction after falling one point from June. Deliveries (49.1) were the only other index to record an improvement from the previous month, albeit still in contraction.

Manufacturing by industry sub-groups continued to produce a mix of results for July.

Petroleum, coal, chemical & associated products (54.0) led the way in July after returning to expansion. Metal product manufacturing (50.8) also managed to keep its head above water, although down 5.1 points from June.

Machinery & equipment manufacturing (49.8) remained largely the same from the previous month, while textile, clothing, footwear & leather manufacturing (47.8) and food, beverage & tobacco manufacturing (45.9) both displayed contraction.

The central region is leading the way in the survey (50.7) after three months of contraction. The Canterbury/Westland regions are sitting on 49.1 – an improvement on their June result.

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3 Comments & Questions

Commenter icon key: Subscriber Verified

Hi Blair.

Bear in mind the PMI reading of 49.4 is seasonally adjusted so it's not accurate to say it's the lowest in four years. More like three months, given April's was 47.6 (only to be followed by 55.9 in May!).

The real story is in how bumpy the PMI has been, month to month. Like a lot of other data of late...very difficult to read.

Regards, Craig.

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Global Depression on the way

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On the way!! - its here!! for fairly much all in the productive sector manufacturing, and almost all facets of farming, the smoke is belching out of the engine

only the people on fixed - fat incomes - in ivory towers dont accept it is here, getting worse, because they havent seen it in their latte life style yet.

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