Manufacturing continues to expand

Thursday 11th August 2011

Manufacturing activity continued to expand at a healthy rate in July, although more slowly than a month earlier.

The BNZ-BusinessNZ seasonally adjusted performance of manufacturing index (PMI) was at 53.2 last month, down 1.1 points from June, but an exact match for activity during the end of 2010 and start of 2011.

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

BNZ economist Doug Steel said ongoing retail sales volume growth would be providing some support to domestic manufacturing, while manufacturers still seemed to see Australia as a source of strength.

Amid recent extreme volatility on world markets, it paid to not lose sight of the real economic indicators, Mr Steel said.

In this country latest data had been solid. For example, the total value of electronic card transactions rose 0.2 percent in July, with the retail component up 0.4 percent and core retail up 0.5 percent.

Those positive increments followed hefty gains in June, and continued a positive trend of recent months, with the value of retail transactions now 9 percent higher than a year ago, Mr Steel said.

Those moves implied ongoing retail sales volume growth through the middle of this year. BNZ reckoned something in the order of 0.5 percent to 1 percent growth per quarter.

"This, in turn, will flow back through the supply chain, providing some support to domestic manufacturing."

Also, the still relatively favourable New Zealand dollar cross rate against the Australian dollar was no doubt helping manufacturers in this country generally.

There may be specific support to those linked into the mining boom, the related strong Australian terms of trade, and rebuilding in Queensland, Mr Steel said.

The cross rate may also be helping domestic manufacturers who compete with imports from Australia.

PMI details also offered some positive signals with seasonally adjusted new orders at a firmly expansionary 56 in July, just down from 56.2 in June, while the employment index posted its third consecutive monthly gain with 52.2.

"This is important momentum to confirm, especially in the event that the latest world financial market wobbles dent confidence, as it well might," Mr Steel said.

Judging by the electronic transaction figures and the PMI, along with a strong demand impulse from the Rugby World Cup just around the corner, the New Zealand economy had a decent amount of momentum to carry it through at least some short term nervousness in world financial markets.

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