High dollar and global jitters put brakes on manufacturing

Weak construction activity and even the distraction of the Rugby World Cup were among reasons given for the loss of momentum. Photo / Natalie Slade

The manufacturing sector continues to lose momentum, though it remains in positive territory.

The BNZ-Business New Zealand Performance of Manufacturing Index was 50.8 for September down from 52.7 in August. Any number above 50 indicates expansion.

It has been falling for the past four months.

It was a gradual loss of momentum rather than a sudden stop, BNZ economist Doug Steel said.

"But the four consecutive small declines have accumulated to a noticeable slowdown in the manufacturing sector since the middle of the year."

Respondents' comments indicated the more important factors are the strength of the New Zealand dollar, weak construction activity, world economic growth and perhaps even the distraction of the Rugby World Cup.

Steel said comments on the exchange rate were net negative by a ratio of three to two and as many were concerned about its volatility as about levels.

Since its peak 10 weeks ago the New Zealand dollar has fallen 10 per cent against the US dollar and around 6 per cent against the euro, while remaining relatively stable against the Australian dollar at levels well below those prevailing in the years before the global financial crisis.

"Time will tell if this sniff of positive sentiment will translate into renewed momentum in new orders down the track. It's a possibility."

Likewise, the prevalent negativity on the state of the construction sector was leavened by some positive comments from respondents discerning a pick-up in activity.

"We remain optimistic on the construction outlook, gaining encouragement from a sharp pick up in residential building consents through July and August, which cumulatively amounted to a 29 per cent rise over the two months," Steel said.

"Sure, this is off a very low base, but it is still a very hefty move in the right direction."

The outlook for growth in the developed world, by contrast, did not look like improving any time soon, he said.

"To us, the global uncertainty remains the biggest threat to ongoing domestic economic recovery."

A few respondents had noted changes in activity since the World Cup kicked off in early September, and comments were negative by two to one.

"Some respondents suggested customers seem distracted by the games themselves.If so it gives the prosect of a bounceback after the final on October 23."

But of the headwinds facing the sector this was likely to be the lightest, hesaid. It was encouraging that on balance manufacturing firms indicated they were taking on staff, when in the August survey more were shedding staff.

Last week's NZIER quarterly survey of business opinion recorded a steep decline in manufacturers' hiring over the past three months and hiring intentions, in both cases, to levels below their long-run averages.