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Manufacturing survey expands for fourth consecutive month

Thursday 17th February 2011

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A survey of manufacturing activity expanded for a fourth consecutive month in January, with business taking encouragement from continuing expansion of new orders.

The latest BNZ - BusinessNZ performance of manufacturing index (PMI), published today, had a seasonally adjusted reading of 53.7 in January, up slightly from 53.2 in December.

A reading above 50 indicates manufacturing is generally expanding, below 50 that it is declining.

All five main diffusion indices showed expansion for a third consecutive month, with a seasonally adjusted reading of 56.6 for new orders, the highest value since April 2010.

BusinessNZ executive director for manufacturing Catherine Beard said the continued expansion of new orders during the past five months was an encouraging indicator the expansion would continue, even if it was slow and steady.

"While new orders are looking reasonably robust, it is still a challenging manufacturing environment, with more negative comments to positive comments this month," she said.

"We are predicting a slow and steady improvement in activity in the sector, once the receipts from our improving export performance start to trickle through the economy and increase domestic demand."

BNZ economist Doug Steel said the latest minor improvement in the PSI was another small step in the right direction.

The economy was now in a period of consolidation, following a post-recession bounce, which may have conceivably turned into a mini-recession.

"However, rising business and consumer confidence, strengthening corporate balance sheets and a stabilising labour market all suggest that the consolidatory period will be relatively short-lived," Steel said.

Variation in performance across the manufacturing sector was particularly wide, depending on a range of factors such as relative exposure to the weak domestic property market, cautious domestic consumer, and generally stronger demand in emerging market economies.

The PMI results supported indications the inventory cycle was swinging in favour of growth, Mr Steel said.

"The widening gap between new orders and inventory is a pointer to more production ahead and a positive manufacturing contribution to GDP growth."



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