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New Zealand manufacturing sector continues to lose momentum

Thursday 13th October 2011

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New Zealand manufacturing has recorded a less expansionary reading for the fourth month in a row in a survey that shows a contraction in the northern region and expansion in the south.

The BNZ-BusinessNZ Performance of Manufacturing Index provides an early indicator of activity levels, and the September figure of 50.8 is down 1.9 points from August. A PMI reading above 50 indicates expansion.

A regional breakdown showed that the northern region fell into contraction for the first time since January 2011, with a reading of 47.4. This was seen as the main reason for the lower overall PMI value for September. A high New Zealand dollar was also identified as a source of "head winds".

"The general strength of the New Zealand dollar has been a major pest for many in the manufacturing sector for some time. Movements in the currency can affect sentiment very quickly, but there is often a lag before the consequences are seen in sales and production," BNZ economist Doug Steel said.

Four of the five seasonally adjusted main diffusion indices were still in expansion during September. New orders recorded an index of 51.5 and employment and finished stocks both registered 51.2.

The production index, at 50.8, fell to its lowest level since March 2011, while deliveries dipped into contraction for the first time since March 2011 to be 49.7.

The metal product manufacturing index fell from 59.6 in August to 45.9 in September but the petroleum, coal, chemical and associated product sector moved back into expansion with a reading of 52.1 in September from 38.2 in August.

The central region recovered to 53.2 from its flat patch the previous month. The Canterbury/Westland region recorded an index of 57.4 while the Otago/Southland region recorded 60.1.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the fourth consecutive slip in expansion was disappointing and comments received tended to focus on a lack of both domestic and offshore orders, while positive comments were spread amongst various influences, with no one issue dominating.

"With Christmas soon approaching, it will be interesting to see if the slow slide can be abated with a pick-up in production and new orders," she said.

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