Sudden drop in manufacturing activity

It’s unclear whether the surprise dip in manufacturing activity is just a glitch, or a genuine stall.

After six consecutive months of expansion, manufacturing activity fell into contraction during October, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).
The seasonally adjusted PMI for October was 46.5 – below the 50-point threshold that indicates expansion.

Activity levels were down from 50.5 in September, along with an average result of 52.0 for the first ten months of the year.

BusinessNZ’s executive director for manufacturing Catherine Beard said that even though expansion levels had been slipping in recent months, October’s sudden drop had probably caught everyone by surprise.

“The result for October reminds us of the rough patch manufacturing went through during most of 2008 and 2009,” she said.

Breaking activity down by region, manufacturers in the Northern region experienced recorded their lowest production levels since January 2010 (46.6) while activity in the Canterbury/Westland region fell away after three strong months (48.7).

Commentary from manufacturers highlighted low demand and confidence and some mentioned business had fallen away as soon as the Ruby World Cup began.

But Ms Beard said it was important not to read too much read into the results of one month alone.

“With Christmas approaching and the World Cup over, November may yet show a return to business as usual for many manufacturers,” she said.

BNZ senior economist Craig Ebert said the October results had been distorted by Rugby World Cup distractions, expenditure switching and even delayed school holidays.

Although the construction market had ebbed, there were clear signs a turning point was budding.

“While the two aforementioned themes may prove transitory, there is simmering concern about export markets and what is happening in Europe.”

All five seasonally adjusted main diffusion indices, employment (48.6) was the least affected by October’s decline, followed by new orders (47.7) and production (46.4).

Deliveries (46.1) experienced its second consecutive decline in activity and finished stocks (45.2) recorded the lowest result.