Drought burned off what new growth there was in manufacturing sector activity during the June quarter.
Manufacturers' sales fell 1 per cent in volume terms, seasonally adjusted, driven by a 9.4 per cent drop in output from dairy factories and meat works which account for about 25 percent of manufacturing activity.
In dollar terms the dairy- and meat-processing sector saw sales fall 8.9 per cent or $572 million in the quarter, the largest percentage decrease for almost 10 years. But it followed a cumulative 40 per cent rise in the two preceding quarters.
Excluding meat- and dairy-product manufacturing, sales were up 1.8 per cent in volume terms and 3.1 per cent in dollar terms, reversing declines of 1.4 and 0.2 per cent respectively in the March quarter.
ASB economist Jane Turner said the early Easter appeared to have played a part in the volatility, removing a working day from the March quarter and adding one to June. Comparing the first half of this year with the second half of 2007, sales volumes were essentially flat.
"Overall, confidence in the manufacturing sector plunged to low levels in the first half of the year. Demand has weakened substantially, both domestically and internationally, particularly for those exposed to the United States," Turner said.
The exchange rate had been high over the first quarter, which was likely to limit orders for the second quarter. The depreciation since then should help NZ manufacturers' competitiveness.
Overall the result was slightly better than expected, she said, offsetting weaker than expected construction data last week and leaving the bank's forecast for June quarter gross domestic product unchanged at a contraction of 0.3 per cent.
