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NZ manufacturing activity shrinks for first time in seven years

Friday 16th August 2019

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New Zealand manufacturing activity contracted for the first time in seven years as new orders dried up and job numbers tumbled. 

The Bank of New Zealand-BusinessNZ performance of manufacturing index dropped 2.9 points to 48.2 in July, falling below the 50 level that separates expansion from contraction for the first time since September 2012.

Industrial production has been tapering off this calendar year, reflecting a cooling domestic economy and growing uncertainty for global trade. The New Zealand dollar dropped about a 10th of a cent to 64.34 US cents after the PMI's release and was recently at 64.38 cents. 

BNZ economist Craig Ebert said the contraction was worth keeping tabs on but didn't mean that the economy was definitely going to stagnate. 

"July’s result is no dead-set that the economy at large is contracting, even growing poorly. The PMI was down in this area in 2011 and 2012, only for annual GDP growth to trundle along near 2 percent. And GDP growth was closer to 3 percent when the PMI slumped to 44.3, way back in 2005," he said. 

New Zealand's gross domestic product is expected to grow at an annual pace of 2.4 percent in the March 2020 year, slowing from 2.7 percent in the year ended March 2019. Government data show manufacturing expanded at a 1.6 percent pace in the March 2019 year, ending a four-year run of 2 percent-plus growth. 

Ebert said the latest PMI reading showed new orders fell 3.5 points to 48.9 and was a common refrain in the respondents' anecdotal feedback. 

"However, it was not clear how much of this weakening in new orders was globally driven or domestic. By industry, only two (petrochemical, and machinery and equipment) of the nine managed to show expansion. By size, the largest firms appeared to be suffering by far the most," he said. 

The other sharp decline was in the employment sub-index, which sank 5.7 points to 42.6, the lowest level since the 2008/09 recession. The household labour force survey shows paid employees in the manufacturing sector shrank to 208,600 in the June quarter from 222,800 a year earlier, and is at the lowest level since Stats New Zealand started compiling that data in 2010. 

The PMI's production sub-index was unchanged at 51.1 while finished stocks fell 4.1 points to 53.2. Deliveries increased by 0.3 of a point to 48.9, remaining in contraction. 

The performance of services index will be released on Monday. 


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