Manufacturing levels off as orders take a tumble

Manufacturing employment is trending down but is still in expansion. Photo / Supplied

‘Soft spot’ something to watch says economist but no cause for alarm

Two recent surveys indicate some loss of momentum in the manufacturing sector.

The BNZ-Business New Zealand performance of manufacturing index (PMI) inched up 0.7 points to 53.3 last month. Any reading over 50 indicates the sector is expanding.

But the PMI had dropped with a thud in April and May, and the indicator for new orders at 50.9 is only just in positive territory, the lowest level since December 2012.

"Just three months earlier new orders were racing away at 60.9. As a leading indicator it doesn't inspire great confidence," BNZ economist Craig Ebert said.

Meanwhile, in the New Zealand Institute of Economic Research's quarterly survey of business opinion (QSBO), released on Tuesday, only a net 6 per cent of manufacturers reported an increase in output over the past three months, down from a net 14 per cent in March and a net 27 per cent last December. The long-run average is a net 10 per cent positive.

"However, there didn't seem any undertone of alarm extending from this, in that a net 16 per cent of manufacturing respondents to the QSBO expected orders to increase over the next three months. This was about five points higher than the norm," Ebert said.

"If manufacturers were really turning downbeat, then one would expect to see their investment being pulled back. There was no sign of it, at least not in terms of plant machinery and equipment."

However, a net 6 per cent of manufacturers in the QSBO reported a drop in the number of people they employ over past three months.

The PMI's employment indicator has also been trending down since March, though it remains in expansion territory.

Business NZ's executive director for manufacturing, Catherine Beard, said overall production levels remained healthy and had been consistent for the past three months.

"Employment levels continue to show more people entering the sector, while the largest proportion of comments received are still positive," she said.

Ebert said though there were clear hints of moderation in the latest QSBO, it seemed mainly to be a settling down into normal growth patterns rather than any sort of stalling.

"We get a similar impression from the recent PMI levels and trends, with its weak spot seemingly concentrated in new orders," he said.

"It's something to watch, while not getting any knickers in a twist for the meantime."