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Slowing new orders growth weighs on January PMI

Friday 15th February 2019

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Growth in new orders slowed for a third month in a row, according to the latest BNZ-BusinessNZ performance of manufacturing index.

The new orders sub-index fell to 52.2 – still showing an expansion, but down from 55.2 in the December survey and 56.9 in January last year. It was the lowest since December 2017.

The overall index fell to 53.1 from 54.8 in December and 55.8 a year earlier.

BNZ senior economist Doug Steel noted the index remains “comfortably” above the 50 threshold that delineates growth from contraction. This indicates the manufacturing sector will extend its six-year expansion.

He said the drop in the production sub-index – from 54.9 to 51.1 – may just reflect a pull-back from the above-trend December reading. It was the lowest since September last year.

“A little more disconcerting is the slowdown to 52.2 in the new orders index and more so as it remains below finished stocks - which remain elevated despite a pull-back from December’s high.

“Unlike production, new orders are not coming off a particularly strong previous month. It raises the prospect that the slowdown there may be a little more genuine, although we wouldn’t want to over-interpret one month’s reading – especially a holiday-laden month.”

Another reason for not getting too downbeat was the “solidity” of the employment sub-index, which was unchanged at 52.2. That doesn’t suggest manufacturers are concerned about a looming slowdown, he said.

Catherine Beard, executive director of Manufacturing New Zealand, said the overall result looks similar to January last year, but aspects of it will warrant closer watching in coming months.

Not only was the new order measure lower, but the proportion of positive comments in the survey was considerably lower at 47.7 percent, from 60.6 percent in December and 60.1 percent in November.

“Seasonal factors such as Christmas and summer holidays were evident throughout the comments. There were also a number who mentioned a softening of customer orders and market conditions,” Beard said.

The overall index at 53.1 compares with a 2018 average of 54.8, and a long-term average of 53.4.

The finished stocks measure fell to 54.8 from 59 in December, but was up from 53.1 a year earlier. Deliveries fell to 53.8 from 58.6 in December and 55.2 in January last year.


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