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Manufacturing weakens in August on waning orders, output

Thursday 11th September 2008

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New Zealand manufacturing activity dropped in August on waning orders and declining production, matching the four-month slump last reached in 2005-2006.

Manufacturing fell 3 points to a seasonally adjusted 45.7 in August, according to the Bank of New Zealand-Business NZ Performance of Manufacturing Index. That matches the result in June, the second-lowest level since the survey began in 2002.

The survey "is yet more evidence that there's still some way to go before businesses, particularly in the manufacturing sector, will feel comfortable with their lot," said Stephen Toplis, head of research at Bank of New Zealand.

The gloomy PMI survey raises doubts about more upbeat indicators in the past month, including a jump in consumer confidence in the Roy Morgan poll and an improvement in business confidence. Still, Toplis said "rapidly easing monetary conditions" and fiscal stimulus via tax cuts will help lift the economy out of its mire.

The New Zealand dollar fell to 65.42 cents and earlier touched an 11-month low after the central bank cut the official cash rate more than expected to 7.5%.

Kiwibank was the first to react in the mortgage market, lowering all home loan rates including 0.50% off its variable rate and 0.36% off its two-year fixed rate.

"We appear to have passed the peak of very high interest rates and we now have the opportunity to pass on some genuine savings to home owners," chief executive Sam Knowles said today.

The PMI showed weakness across all four regions measured. Production, employment and new orders all posted contractionary results, while deliveries of raw materials expanded, with a reading of 50.2. A number below 50 indicates a contraction.

By Jonathan Underhill

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