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Manufacturing slumps in April

Thursday 10th May 2012

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New Zealand manufacturing slipped into contraction in April, falling to its lowest level in six months and shedding March's very strong gains, according to the BNZ-BusinessNZ performance of manufacturing index (PMI).

The PMI stood at 48.0 in April in seasonally adjusted terms, down 5.8 points from the March reading. Compared with previous April readings it is the second lowest value, down from 52.8 last year. A reading of 50 separates a contraction from an expansion.

"Even if the trend has been mildly positive over recent months, as it has been, it highlights the more-than-usual month-to-month volatility in performance," said Doug Steel, economist at Bank of New Zealand."For now, we stick with the view that the manufacturing sector is on a mildly positive trend." Unadjusted results showed all regions contracted last month.

Falling to their lowest levels since January were the Northern region on 46.2 and the Central region, dropping to 49.2 points. Canterbury/Westland decreased to 42.2, its lowest level since March 2011, while the Otago/Southland region took a significant hit, declining to 38.3 points, its lowest level of activity since March 2009.

Among the sub-groups, food, beverage & tobacco was one of the few stand-outs on 54.0 points, even as it slipped from 63.1 in March. Petroleum, coal, chemical and associated products fell to 40.6 points, machinery and equipment manufacturing dropped to 41.7, while metal manufacturing dropped to 47.7 points.

Steel said the drop could be attributed to several things, including ongoing uncertainty in Europe, a slowdown in Australia and the strong New Zealand dollar. "The April PMI dip can be sheeted back to the New Zealand dollar, either through its general persistent strength or the important New Zealand dollar/Australian dollar crossrate for manufactures hitting a seven month high in April," he said.

"We will be on the lookout to see if the dip in April's PMI is a precursor to a softening in other business survey's across a wider range of sectors." The drop in activity also led the proportion of negative comments increasing to about 58 percent from 52 percent.

Globally, the JPMorgan Global Manufacturing PMI stood at 51.4 in March, helping to signal a modest expansion in world manufacturing for the fifth month in a row.

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