Manufacturing boost 'stunning'

The Christchurch rebuild is having a positive effect on manufacturing. Photo / APN

Index for May hit its highest level in nine years, with more employers hiring

A barometer of manufacturing is pointing to fair weather as the BNZ-Business New Zealand performance of manufacturing index for May hit its highest level in nine years.

"It is a stunning result," BNZ economist Doug Steel said. "And we do not say stunning lightly."

Last month's PMI reading of 59.2 was a significant lift from April's already very solid 55.2, and the highest level since June 2004, he said, and a world away from last year's average 50.9 Any reading above 50 indicates activity in the sector is expanding.

"PMI readings do not get much bigger than this, even globally in better times than prevail offshore at present," Steel said.

The JP Morgan World PMI is just 50.6, and Australia's is in contraction territory.

The Canterbury rebuild is a major positive factor, as much of the manufacturing sector's output supplies the construction sector.

Reserve Bank research last year found that a 1 per cent increase in construction requires a 0.4 per cent increase in manufacturing.

There was evidence manufacturing growth was broadening across regions, Steel said. "Canterbury remains the fastest growing region, but all regions are expanding and the annual variation across regions is below its long-term average."

The northern region is at its highest level since November 2010.

All of the PMI's five main sub-indices are in expansion territory, led by new orders which at 63.1 is at its highest level for nearly nine years, followed by production at 60.5.

The survey's employment measure, which has tended to languish, jumped 7.8 points to 55.3, its strongest since November 2007.

Business New Zealand executive director for manufacturing, Catherine Beard, said the mood of the sector was typified by one respondent who said that after five years he now felt confident enough to hire extra staff. Overall, 58 per cent of respondents' comments were positive, the highest proportion this year.

While construction demand was a big part of the overall uplift, Beard said, rising demand in Asia continued to boost the food and beverage sector and NZ manufacturers often enjoyed a cost advantage against Australia, even with the exchange rate now moving against them.

In addition manufacturers are benefiting from improved consumer sentiment. This week's electronic card transactions data recorded a 6.7 per cent rise in spending on durable goods over the past year.

"If there is any potential for nervousness it would be around the Australian economy," she said.

Australia takes nearly half of New Zealand's elaborately transformed manufactured exports.

Beard said a common theme among the negative comments was the exchange rate. Steel said that while there had been some relief over recent weeks as the currency had fallen against the US dollar, the pound sterling and the euro, it was still high by historical standards.

In contrast to the PMI, which is a leading indicator, the rear-view mirror picture from Statistics New Zealand's March quarter economic survey of manufacturing on Monday was more downbeat.

It recorded a 0.6 per cent drop in manufacturers' sales volumes in the quarter, seasonally adjusted, and a scant 0.2 per cent rise in sales by value. But inventories of finished good rose sharply and Steel estimates manufacturing production rose around 1 per cent in the March quarter.