Recovery hopes dim as manufacturing dips

Manufacturing activity stumbled in August after a general period of improvement since the start of the year, a monthly survey shows.

The performance of manufacturing index (PMI), produced by BNZ Capital and Business NZ, recorded a reading of 48.7 for last month, down 0.9 points, from July.

A PMI reading below 50 indicates manufacturing activity is contracting.

The period of contraction has now lasted 16 months, although last month's value was higher than the 45.4 recorded in August 2008.

The PMI comes out two days after Statistics New Zealand figures showed manufacturing sales volumes rose a seasonally adjusted 1.8 per cent in the June quarter from the three months to March, but the value of manufacturing sales was down 4.8 per cent.

BNZ Capital senior economist Craig Ebert said today the dip in the PMI in August did not spoil the recovery theme.

But it did sound a cautionary note not to get overly excited about a strong, or sustained, recovery just yet, Ebert said.

The local manufacturing slump of the past year had traversed a sizeable rebound in dairy production, following a severe drought, which would normally have been enough for all manufacturing output to expand.

There were also signs that meat processing increased in the June quarter, aluminium production improved and forestry activity bounced back on buoyant exports, albeit mainly logs to China.

"This implies the rest of NZ manufacturing must have remained very poorly indeed, up to June," Ebert said.

That highlighted the plight of manufacturers of investment-type goods, such as plant, machinery and equipment.

Four of the five main diffusion indexes of the PMI showed contraction in August.

Production was at 48.8 after having been positive in July, while new orders at 50.3 showed expansion for a third consecutive month but was down from July.

Employment at 46.9 recorded its highest level since May 2008, and finished stocks rose 6 points to 48.7, its highest result since February.

Business NZ chief executive Phil O'Reilly said that since the July PMI, the New Zealand dollar had continued to appreciate.

Despite that, the proportion of comments from respondents regarding exchange rate issues was nowhere near levels seen in 2007 and 2008, O'Reilly said.

General concerns remained focused on the general economic climate having flow-on effects into their business, as well as an orders and sales base that was still largely soft and unpredictable.

- NZPA