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Tracking the Economy

Friday 15th September 2000

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Manufacturers have been leading the way in voicing their concerns about easing domestic demand and unfavourable business conditions in New Zealand. So it isn't surprising that manufacturing sales statistics released this week for the June quarter showed a slowdown compared with growth earlier in the year. The slowing in growth is consistent with the NZIER's Quarterly Survey of Business Opinion. Respondents to the June survey reported an easing in output over the June quarter.

Real quarterly growth declines

According to Statistics New Zealand, seasonally adjusted sales in the manufacturing sector increased 0.7% in the June quarter, less than the 1.6% increase in the previous quarter. However, after removing the impact of prices, manufacturing sales declined 0.6% in the June quarter - the first quarterly decline in real sales since the 1998 December quarter.

Seasonally adjusted manufacturing sales
Juno quarterly per cent sales Source: Statistics New Zealand, NZIER
The chart below shows quarterly growth in nominal and real sales for some of the manufacturing sectors. Higher prices for petroleum products including methanol and increased demand for fertiliser from the recovering agricultural sector buoyed sales. Real sales for wood and wood products also increased robustly in the June quarter, following a decline in the March quarter. Higher demand for construction goods in the US and Australia helped boost manufacturing sales. Real quarterly meat and dairy manufacturing sales took a sharp fall in the June quarter. Although this would normally be an alarming sign, the quarterly fall followed strong sales growth in the previous quarter.

Manufacturing sales
Annual per cent change Source: Statistics New Zealand, NZIER
Annual growth still strong

Despite the fall in quarterly manufacturing sales growth, annual growth is still robust. Real manufacturing sales were 5.4% higher in the 2000 June quarter compared with the same quarter in the previous year. Annual growth in real manufacturing sales has been rising more than 4% since September 1999.

Of the 10 manufacturing sectors surveyed, annual growth increased in seven sectors. The only sectors to record a real annual decline in sales were the printing and publishing, non-metallic minerals and other manufacturing.

Higher prices play a large role

Using nominal figures as an indicator for underlying growth has become less relevant recently because of higher producer prices. Manufacturing activity is no exception to this.

Manufacturing costs
Annual per cent change

Source: Statistics New Zealand
In the year to June, manufacturing producer output costs increased about 6% - the highest annual increase since the survey began in 1994 (see chart below). Higher fuel prices and higher costs for imported materials have contributed to the rise in output prices. Also contained in the chart is growth in implicit average hourly earnings - calculated from total salaries and wages paid divided by hours worked. Wage growth has been relatively subdued compared with manufacturing output costs. If upward pressure on wages emerges, manufacturers may find they need to increase output prices further to maintain margins. But in a competitive environment, this may prove difficult.

With some business confidence surveys showing a recent improvement in manufacturers' outlook for activity, we expect real sales in the manufacturing sector to improve modestly over the year.

- Compiled by Lisa Yee

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