Manufacturing new orders have taken a steep dive in July dropping almost 10 index points from June, further indicating bumps ahead in New Zealand's economic recovery.

The BNZ-Business NZ Performance of Manufacturing Index provides an early indicator of activity levels, with a reading above 50 indicating expansion, below 50 a contraction.

The new orders index dropped 9.8 points from June to 47.6, which in turn helped pull the full PMI index down six points from June to 49.9.

"This was the first sub-50 reading for new orders in 14 months,"
said BNZ senior economist Craig Ebert. "The next weakest component was deliveries of raw materials at 49.5.

These indices obviously warn that a slowing in the manufacturing sector is in the immediate pipeline."

Of the PMIs other indices, production was down three points but still in expansion at 52.1. Employment at 52.2 was much the same as June, and finished stocks down 1.8 points to 52.6.

Goldman Sachs JB Were economist Philip Borkin said the weakness in new orders was a worrying sign.

However, the short history of the survey made interpretation difficult.

"We will not pass judgement on whether this is an aberration or the start of a new trend just yet.

"Nevertheless, it is coming at a time of other weak domestic and international news-flow and leaves us comfortable with our belief that the RBNZ should hold off lifting the OCR further this year."

The Central region bucked the trend of contraction in other areas, lifted 2.2 points to 56. Otago/Southland slipped 10.1 points from June to 48.3, the Northern region dropped 3.8 to 47.8 and Canterbury lost four points to 49.4.

The industry sub-group with the strongest expansion was food, beverage and tobacco at 60.6, while petroleum, coal, chemical and associated product were at 55.6 and metal product manufacturing 50.6. Machinery and equipment manufacturing at 41.5 was down significantly on last month.

Comparing New Zealand to the rest of the world, the JPMorgan Globaly PMI for July was 54.3, its lowest level in eight months following a record high-point in April, but still in expansionary territory. The Australian PMI softened to 54.4, while New Zealand at just under 50 is flat.

Comments about market conditions had 61.5 per cent negative comments, higher than in June, versus 38.5 per cent of comments that were positive.

Slowing orders as the effects of the lingering recession damp consumer demand formed the focus of most negative comments, with positive feedback concentrating on obtaining offshore orders, particularly from Australia.