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NZ manufacturing still expanding, but growth is easing off

Thursday 10th June 2010

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New Zealand’s manufacturing sector is still in an expansion mode according to May’s figures, though its pace has eased off since April.

The BNZ-Business NZ Performance of Manufacturing Index provides an early indicator of activity levels, with May’s 54.5 index showing expansion, even though it is down 4.1 points from April. A PMI reading above 50 points indicates manufacturing activity is expanding, below 50 indicates it is contracting.

“What we’re left with, then, is a much more mixed picture by way of the slicing and dicing, compared to the more concerted momentum evident earlier in the year,” said BNZ senior economist Craig Ebert.

The only one of five of the indices to slip into contraction was employment at 49.3. Production at 55.3 was down 7.2 points on April, new orders at 56.4 eased back 4.2 points but is still solidly expansionary, finished stocks at 52.4 are in positive territory for the fourth month running after a prolonged period in contraction, and deliveries at 57.6, though 0.9 points behind April, is still in expansion.

Manufacturing by industry sub-groups were not all in expansion mode as they were in April. Textile, clothing, footwear and leather manufacturing was at 63.7 and machinery and equipment manufacturing 59.7. The other main categories of petroleum, coal, chemical and associate products was 46.9, wood and paper product manufacturing 47.5 and metal product manufacturing 49.6.

New Zealand is not the only country to have eased in manufacturing activity. The JPMorgan Global PMI for May eased to 57.2 compared to April.

“The world manufacturing bounce-back – which has outpaced almost every other sector in the recovery phase – is peaking,” Ebert said. “If nothing else, the world’s manufacturing activity, and expectations thereof, might be dampened, even if just transitorily, by the renewed ructions doing the rounds in financial markets of late."

He said the economic path "is one of continued recovery – internationally and domestically – (though) we’re also of the opinion it will probably be a bumpy one, rather than of the strong and sustained variety so often seen post-recession nadirs.”

New Zealand manufacturers’ comments about market conditions had negative comments at 54.3% slightly higher than the positive at 45.7%.

Negative comments were largely around low demand and orders and seemed domestically focused Ebert said. Positive comments were largely relating to exports or industry sectors that are performing better, such as the dairy sector.

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