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Manufacturing expanded in February; inventory build up worth watching

Friday 15th March 2019

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New Zealand's manufacturing activity continued to expand in February, although a build-up in inventories may indicate slower production in the future, Bank of New Zealand economist Craig Ebert says. 

The BNZ-Business NZ performance of manufacturing index increased 0.7 of a point to a seasonally adjusted 53.7 in February, and was up from a 53.5 reading in the same month a year earlier. A reading above 50 indicates activity is expanding.

The production sub-index climbed 2.6 points to 53.9 and new orders were up 2.5 points at 54.7. Both of those readings were in line with February 2018. Finished stocks increased 0.7 of a point to 55.4, the highest reading among the sub-indices, and up from a reading of 51.3 a year earlier. 

BNZ's Ebert said the increased production supported the view that manufacturing activity is still expanding, although other data sets suggest producers were leaning on their inventories to meet demand rather than simply making more goods. 

"Inventory dynamics will thus bear monitoring, lest they continue to warn about slower production down the track," Ebert said in a note. "The net effect still indicates a cloud around the strength of demand, relative to recent production trends." 

The PMI's employment measure was the weakest, falling 1.2 points to 50.8, still indicating expansion, while deliveries were up 1.2 points to 55.2.

ANZ Bank New Zealand's February truckometer index earlier this week showed a 0.4 percent increase in the heavy traffic, suggesting activity is picking up, however, a 1.3 percent dip in the light traffic index signalled the economy's momentum has turned down. 

Meanwhile, Stats NZ's household labour force survey showed the manufacturing sector employed 240,200 people in the December quarter, or about 9.1 percent of the country's workforce.

Manufacturing accounts for about 9.7 percent of the economy. Fourth-quarter gross domestic product figures are due next week. 

(BusinessDesk)

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