Manufacturing makes big gains

Performance index points to a broad-based recovery across all industry types

There is clearly a strengthening, and broadening, recovery going on in the manufacturing sector.Doug Steel, BNZ economist A strong and broad-based recovery in manufacturing is under way, according to a leading index.

The BNZ-Business New Zealand performance of manufacturing index (PMI) rose 2.2 points last month to 58.9, its highest level since December 2004. It has only been higher three times during the eight years this gauge of manufacturing activity has been available.

Manufacturers are reporting expansion not only in production and new orders, but in employment and inventories - evidence of confidence in the sustainability of the improvement. BNZ economist Doug Steel said that a year ago all but one industry sector (food, beverage and tobacco manufacturing) were deep in contraction territory as firms battled weak demand at home and in their export markets.

"Nowadays, while there is still variation across industries, not one is below the breakeven 50 line."

The recovery is also broad-based by region and by size. Large firms, with more than 100 employees, are growing at the fastest rate while micro firms, with up to 10 employees, are growing the most slowly.

"These indicators are still averages. Not every business is going forward," Steel said.

"Even so, on the whole there is clearly a strengthening, and broadening, recovery going on in the manufacturing sector."

It would help to offset patches of weakness elsewhere in the economy.

"Falling house prices, dropping non-residential building consents, a weak rural property market and easing net [inward] migration are clear indicators that recovery is not yet economy-wide - not to mention the immediate and downstream negative impact of drought."

Business NZ's executive director for manufacturing Catherine Beard said comments from the manufacturers surveyed were positive more often than not.

"They indicated they were sensing greater confidence from the people they were doing business with."

The strength of the Australian economy, and a favourable transtasman exchange rate, had been positive for manufacturers exporting to that country, New Zealand's largest export market, she said.

"But even domestic-focused companies - although it depends on the sector - are feeling buoyant." The strength of the New Zealand PMI was consistent with measures in Australia and United States, and with JP Morgan's Global PMI, Beard said.

Steel said the buoyant PMI for April was consistent with BNZ's forecast of strong growth through 2010. "We expect annual growth in manufacturing production to exceed 8 per cent by the September quarter this year, as the sector puts the two previous horror years behind it."

MANUFACTURING ASCENT
BNZ-Business
NZ index

PMI
April 2010: 58.9
April 2009: 43.9

Production
April 2010: 63
April 2009: 42.9

Employment
April 2010: 52.2
April 2009: 44.5

New orders
April 2010: 61
April 2009: 43.2

Finished stocks
April 2010: 53.4
April 2009: 45.6

Deliveries
April 2010: 58.7
April 2009: 43.6