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Manufacturing growth stalls

Thursday 14th April 2011

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Growth in manufacturing activity stalled in March for the country as a whole, with northern areas looking much stronger than those in the South Island, a new survey shows.

The March BNZ - BusinessNZ performance of manufacturing index (PMI), published today, is the first such survey since the devastating February 22 Christchurch earthquake.

It puts the seasonally adjusted PMI for March at 50.1, representing a level of minimal change in the industry.

Unadjusted results showed a clear distinction between the North and South Islands, with a reading of 52.4 for the northern area, 53.1 for central, 42 for Canterbury/Westland, and 44.3 for Otago/Southland.

Readings above 50 indicate manufacturing industry is expanding, while below 50 that it is contracting.

BNZ senior economist Craig Ebert said it was hard to know what to make of the March PMI.

It was hardly surprising the index had pretty much stalled, given that it was the first read after the earthquake.

New orders overall at a seasonally adjusted 49.3 were not encouraging of any immediate rebound in production, Ebert said.

But employment intentions, at 53.2, remained positive enough to suggest firms still saw ongoing recovery over the medium term.

The March PMI of 50.1 represented a flat end to the first quarter and set a soft tone going into the start of the June quarter.

The situation in Christchurch set a cautionary tone around performance and expectations, Ebert said.

The latest PMI also varied by industry with the weakest categories, relatively, being the printing, publishing and recorded media category, along with the textiles, clothing and footwear group. The strong elements were in metal products, machinery and equipment.

That tied in with reports that manufacturing export sales were doing far better than domestic sales.

"Notwithstanding the diverging trends by industry, and geography, making interpretation very difficult we still believe there's a good chance of a further advance in manufacturing GDP in the March quarter of 2011," Ebert said.

That essentially related to the dairy industry, where output had been able to rebound this calendar year, following the late-2010 drought.

"For further down the track we have our fingers crossed that New Zealand's manufacturing sector will be very much part of the pick-up we still expect for the economy as a whole," Ebert said.

If that did happen, the PMI should grapple its way into properly positive territory in coming months, with a more obvious and widespread pulse emerging from its present collective of mixed messages.



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