Manufacturing keeps expanding

Prime Minister John Key is shown round the new factory at the re-opening of the SCA Paper plant in Kawerau. Photo / Christine Cornege.

New Zealand manufacturing activity expanded for a 16th straight month in January, driven by new orders and production, suggesting the relatively strong kiwi dollar hasn't been enough to dent activity.

The BNZ-BusinessNZ seasonally adjusted performance of manufacturing index slipped to 56.2 last month from 56.4 in December. The PMI was at 55 in January 2013. A reading above 50 indicates expansion in the sector.

New orders eased to 60.2 from 61.4 in December, having held above 60 in six of the past seven months. Production rose to 59.5 from 57.2.

The strength of the New Zealand dollar against its Australian counterpart is expected to be a key theme for earnings season as it erodes the value of sales across the Tasman. Still, while respondents to the PMI survey noted the high kiwi as a negative influence, "others commented that Australia was a source of improvement and some even noted outright strength," said Bank of New Zealand economist Doug Steel.

"The strong positive momentum from last year has continued," Steel said. "Manufacturing growth continues despite the general strength of the New Zealand dollar."

A major offsetting factor to the strong currency has been "a strong and pervasive upswing in domestic investment activity including rapid construction growth," Steel said. "Another is a big increase in agriculture income courtesy of a 40-year high in the terms of trade and the increased purchasing power for investment and consumption that the country enjoys as a result."

Four of the five main diffusion indexes in the PMI expanded in January. Employment fell to 51 from 55.2 and deliveries of raw materials rose to 56.6 from 52. Finished stocks remained in contraction at 48.4.

The Northern region's activity reading slowed to 53.1 from 60.1, while Canterbury/Westland returned to expansion at 53 from 49.9. Otago-Southland fell back to 56.4 from 58.3 and Central remained in contraction at 48.8.