Manufacturing sales rise at the fastest pace in almost two years

New Zealand manufacturing sales volumes rose at the fastest pace in almost two years in the third quarter, boosted by a pickup in meat and dairy activity.

This has prompted economists to revise up their forecasts for economic growth.

Total seasonally adjusted sales volumes increased 3.5% in the three months ended September 30, after growth stalled in the second quarter, Statistics New Zealand figures reveal. That's the fastest pace since the fourth quarter of 2013 when sales volumes rose 4%.

Manufacturing volumes for dairy and meat products, the country's two largest commodity export earners, increased 6.3% in the third quarter, the biggest gain since the 2013 fourth quarter when sales volumes soared 12%.

Excluding meat and dairy, product manufacturing, sales rose 1.9%. In other industries, beverage and tobacco product manufacturing jumped 9.9%, while fruit, oil, cereal and other food manufacturing advanced 4.5%.

"As expected, manufacturing sales volumes were boosted by a 6.3% increase in dairy and meat sales volumes," ASB Bank senior economist Jane Turner says in a note.

"This increase is likely a result of increased slaughter, as low dairy prices for the second consecutive season have prompted an increase in dairy cow slaughter. We expect that dairy production will register a fall over Q3."

Manufacturing is the last significant piece of data that feeds into gross domestic product in the third quarter, which is scheduled for release Dec. 17. The Reserve Bank projected GDP growth of 0.5 % in its September monetary policy statement, and will update its forecasts with its latest MPS on Thursday.

ASB revised up its expectations for third quarter growth to 0.8%. It had already revised up its forecast following strong wholesale trade data yesterday, to 0.7% from 0.6%.

Meanwhile, Westpac Banking Corp senior economist Michael Gordon says the strong gains in manufacturing and wholesale trade over the past two days meant its current forecast for 0.7% growth may be revised higher when it finalises its forecasts tomorrow.

ASB's Turner Ms says a "robust" 0.8% GDP result would be "payback" for "very weak growth" over the first half of the year.

"Underlying economic demand remains subdued and we still have lingering concerns for the year ahead given the level of business confidence," Ms Turner says.

"We continue to expect the Reserve Bank to cut the official cash rate to 2.5% at this week's OCR review. And, due to the subdued inflation outlook, we anticipate two further cuts in mid-2016, bringing the OCR to a low of 2%."

The actual value of manufacturing sales rose 1.4% to $23.6 billion in the third quarter, Statistics NZ says.

(BusinessDesk)