Manufacturing 'muddling' along as activity contracts

New Zealand manufacturing is "muddling" along as activity contracted last month in anticipation of a pick-up next year when Canterbury's reconstruction effort gathers pace.

The Bank of New Zealand-Business New Zealand performance of manufacturing index fell 1.5 points to 48.8 in November, where a reading below 50 indicates a contraction of activity and one above 50 implies expansion.

The headline figure has barely budged since June, hovering at or around the break-even 50 mark.

The rebuild in Christchurch is seen as a looming boost to the sector, with construction firms champing at the bit as insurance money starts flooding into New Zealand and funding what is seen as a $30 billion-plus job.

At the same time, a resurgent property market bereft of housing supply is stoking building conditions in Auckland.

"It is indicative of a manufacturing sector muddling along, at least on average," BNZ economist Doug Steel says in his report.

"While we remain optimistic of a manufacturing improvement through 2013, we remain cautious about reading too much into the latest PMI results, even though they have essentially stabilised at the headline level."

Manufacturers have been vocal in their pleas for government aid as local makers struggle to contend with a strong New Zealand dollar that eats into their profitability when selling abroad, while at the same time making their wares seem less attractive in comparison to cheaper imports.

Today's PMI showed production slipped back into a contraction with a reading of 49.3 from 53 a month earlier, while new orders were flat at 50. Finished stocks rose to 53.4 from 52.1 in October and delivers improved to an expansionary 51.8 from 49.7. Employment deteriorated to 48.2 from 49.1.

Business NZ executive director Catherine Beard says "sluggish production and new orders has meant the overall result has had little chance to show stronger activity levels, while employment in the sector remains in contraction".

Food, beverage and tobacco manufacturing continued to shine, rising to 79 in November from 73.3 a month earlier, while machinery and equipment crept up 0.7 of a point to 51.8. Metal product manufacturing improved to 48.5 from 42.7, though was still in contraction.

On a regional basis, Otago/Southland was the standout, rising to 65 from 54, followed by Canterbury/Westland at 62 from 50.8 in October. The Northern region rose to 56.6 from 52.1 and Central deteriorated to 51.7 from 57.6.


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