New Zealand's manufacturing sector fell further into contraction last month, with employment at its lowest since July 2009, suggesting weaker demand in key export markets and a resilient kiwi dollar are hurting companies.

The BNZ-BusinessNZ performance of manufacturing index (PMI) fell 2.2 points to 47.2 in August from July, when the index slipped below 50 for the first time in three months. A level of 50 marks the difference between contraction and expansion. All five seasonally adjusted diffusion indexes in the PMI contracted in August, the first time that has happened since October last year.

The PMI survey comes after Reserve Bank governor Alan Bollard kept the official cash rate at 2.5 per cent, saying the weak outlook for the country's trading partners threatens economic growth and the strong kiwi dollar is hurting exporters and local manufacturers.

The employment index fell 2.1 points to 45.4 while production declined 1.9 points to 47.6. New orders and deliveries were both at 48.1 and finished stocks edged up 0.4 points to 48.


"The general message of manufacturing contraction in August is clear," said Doug Steel, economist at Bank of New Zealand.

"The strong NZD is undoubtedly a major headache for many manufacturers" though manufacturing "globally is struggling".

The JPMorgan Global Manufacturing PMI shrank further to 48.1 in August, to reach the lowest in 28 months.

Today's manufacturing employment figures were the worst since July 2009 and confirmed the fears of workers in the sector of a jobs crisis, said a union for textiles and wood processing workers.

First Union general secretary Robert Reid said the survey overall reported a further contraction in manufacturing activity.

"Our union has been dealing with several significant cases of actual or proposed redundancies with employers, as have the EPMU and other unions.

"Goodman Fielder's announcement last week of a proposal to close around 18 of its 53 factories in Australia and New Zealand was the latest bad news for members of our union, which was announced without workforce consultation."

Reid said there was now a growing consensus around the need for monetary policy reform.

"Manufacturing is New Zealand's third largest employing industry. Hundreds of thousands of manufacturing workers deserve better a better response from the government that 'there's nothing we can do."