NZ manufacturing softer in November: PMI

BNZ Senior Economist, Craig Ebert, Wellington. Photo / File

New Zealand manufacturing activity softened for the second month in a row in November while holding above its long-term average.

The Bank of New Zealand-BusinessNZ performance of manufacturing index declined to a seasonally adjusted 54.4 in November from 55.1 in October. A reading of 50 separates expansion from contraction, with the long-term average at 53.2. Three of the five sub-indices dropped.

New Zealand's manufacturing sector had almost been in continuous expansion since October 2012, barring a blip in January last year when the PMI slipped into contraction with a reading of 49.8. The economy has been buoyed by a construction boom that started in the post-earthquakes Christchurch rebuild and has extended to Auckland's housing market.

In the latest monthly data, employment was the worst performing sub-index, down 5.1 points to 48.6. Finished stocks dropped 2.7 points to 49.4 and deliveries fell 2.3 points to 53. Production was unchanged at 57.9 while new orders gained 2.9 points to 58.

The employment index drop was rogue, Bank of New Zealand senior economist Craig Ebert said in his report.

"We don't see signs elsewhere that manufactures are cutting jobs - quite the opposite," Ebert said. "The other weak part of the PMI was in stocks of finished product. This does not look to be a sign of caution, not with the PMI new-orders index pumping away at a seasonally adjusted 58."

Construction is still underpinning momentum in New Zealand manufacturing production, with positivity despite November's earthquakes, Ebert said.

"November's earthquakes will obviously disrupt and displace some business activity. But they will also reinforce the amount of construction that needs to be carried out," he said. "It was interesting that of all responses to November's PMI only two cited the recent earthquakes as a negative factor. But far more referenced construction as a positive influence on business."

Ebert said if building work statistics due today are as strong as BNZ expects, there will be a good chance of a solid increase in GDP when the third quarter national accounts are published on December 22. He is currently estimating a 0.8 per cent gain, or 3.6 per cent year on year, with upside risk.