Talk of sector's death premature: bank researcher.

Manufacturing statistics continue to show a sector challenged but not in crisis.

In the December quarter sales of manufactured goods, when adjusted for price changes and seasonal effects, rose 1.5 per cent, on top of a 2.5 per cent rise in the September quarter, Statistics New Zealand reported yesterday.

The latest rise was despite a 1.1 per cent fall in meat and dairy product manufacturing, which represents about a third of the manufacturing sector, reversing the pattern of the previous quarter when a 12.3 per cent jump among meat works and dairy factories offset a 1.1 per cent decline in the rest of the sector.

Those figures relate to real sales, however, and when account is taken of changes in inventories a different picture emerges.


Seasonally adjusted sales volumes of all manufacturing, except meat and dairy, rose $200 million in the December quarter but stocks were run down by $400 million, implying lower output during the quarter.

Similarly, a drop of $90 million in the meat and dairy processing sector's sales volumes was dwarfed by a $1.8 billion increase in inventories.

Bank of New Zealand head of research Stephen Toplis said non-food manufacturing had been trending slowly higher since its trough in March 2009, rising 6.6 per cent since then.

This was not cause for celebration, he said, as levels were still no higher than they had been in 1994 and activity had been going nowhere for the past two years. "But you could hardly define it as a collapse, either."

According to the latest ANZ business opinion survey a net 48.7 per cent of manufacturers are optimistic about their outlook, he said. "This is a massive 20.9 points above the average for this series."

Toplis echoed a point made by the Reserve Bank and by the Auckland Council in its submission to the Opposition parties' inquiry into manufacturing, that the steep drop in manufacturing volumes during the recession was in domestic, not export, sales.

"If we are right that this is largely to do with the demise of the construction sector then the expected bounce in construction activity over the next few years will prove a boon to the manufacturing sector."

If there was a crisis in manufacturing, global over-capacity was its root clause, Toplis said, and it would remain problematic regardless of any changes to New Zealand exchange rates.


There was unlikely to be substantial relief from the currency and the food processing sector would suffer, ultimately, from the current drought.

"So, yes, there are serious issues facing the manufacturing sector and, yes, there are many manufacturers who are struggling and will struggle to survive. But talk of death of the sector as a whole is wildly premature.

"Furthermore, the suggestion that all that is needed for success is an adjustment to the currency is misplaced."