Building upturn bodes well for manufacturing

A lift in housing construction would support areas such as durable goods. Photo / NZPA

Overall performance indicator hovering in neutral zone, masking a wide variation between industry sectors.

A gauge of activity in the manufacturing sector continues to hover in the neutral zone between expansion and contraction.

The BNZ-Business New Zealand performance of manufacturing index (PMI) registered 48.8 in November, down from 50.3 in October. A number above 50 indicates the sector is expanding; below suggests contraction.

The PMI has stabilised around the 50 mark over the past six months, indicative of a manufacturing sector muddling along, at least on average, said BNZ economist Doug Steel.

But the average masked wide variation among sub-sectors.

The non-metallic mineral product sector, which includes cement, posted its second consecutive month with a PMI over 77, a level it had surpassed only once before.

It implied very rapid growth, but off a low base, Steel said.

Food processing, with a PMI of 79, was also deep in expansion territory but metal product manufacturing, while up on October figures, was still going backwards overall.

Next year, despite an unhelpful exchange rate and patchy international demand, the manufacturing sector had much to support it, including still buoyant primary production and especially the accumulating rebound in construction activity, he said.

Rising sales of existing houses and associated house price inflation often preceded a lift in construction, the indirect effects of which, such as more spending on durable goods, would support other areas of manufacturing.

"This is not to suggest that the many challenges the manufacturing sector currently faces will be fixed by a pick-up in construction activity," Steel said.

"But we think it will help."