Manufacturing up for first time in 19 months

Friday 16th October 2009

New Zealand manufacturing activity has posted its first overall expansion in 19 months, matching global recovery indications.

Almost all of a recent survey's indicators showed growth, pointing the way to increased manufacturing production in the next few months.

The BNZ Capital-Business NZ Performance of Manufacturing Index (PMI) is a monthly survey of the sector, with four of the five indices in the September index displaying expansion.

A PMI reading above 50 points indicates manufacturing activity is expanding, below 50 points indicates contraction.

New orders (56.3) led the way with its highest result since November 2007, while production (51.6) bounced back from an August decline to record its highest level since April 2008.

Employment (51.2) displayed positive growth for the first time since January 2008, a significant boost on the record lows experienced throughout 2009. Deliveries of raw materials (51.1) continued to improve with expansion for the current month, while finished stocks (44.4) was the only sub-index continuing to show decline.

All four regions in the survey showed expansion for the first time since November 2007.

Within the industry sub-groups, the food, beverage and tobacco sector (60.1) led the charge, while the petroleum, coal, chemical and associated products sector (55.5) recovered sharply from the August result, being only marginally below its July value.

Metal product manufacturing (48.0) remained largely unchanged from August, while machinery and equipment manufacturing (49.1) improved on the July/August results.Global PMI at 53 was only slightly ahead of New Zealand's 51.7 as the world economy tracks upwards.

Commenting on the PMI results, BNZ Capital economist Mark Walton said people concentrating on the rise on the NZ dollar against the US dollar may be misinterpreting the overall effect on manufacturers.

Australia is NZ's biggest single market, and while the NZ dollar/Australian dollar cross rate has edged up over the course of this year, it has tended to trade broadly within a 78 - 82 cent range, well below the 85c average of the past decade.

"In general, in fact, currency moves have been great news for manufacturers," said Walton.

"Intermediate inputs are generally imported in US dollars and final sales are dominated by Australian dollar receipts. With the NZ dollar appreciating strongly, and its cross rate with the Australian dollar remaining fairly stable, manufacturers are becoming increasingly optimistic about their prospects."

"The robust Australian economy is leading the pack of developed countries out of the global recession, with growth across the Tasman expected to lift to 3% by the end of 2010. That growth, and the import demand it will fuel, will prove a huge boon to New Zealand exporters with a trans-Tasman focus," Walton said.

"To quote Dr Bollard, we are the lucky neighbour."

Businesswire.co.nz

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