Manufacturing job losses belie pickup in activity

BlueScope Steel has a strategic review underway of its NZ Steel and Pacific Steel businesses. Photo / 123RF

New Zealand manufacturers are still shedding staff despite activity cranking up as the country comes out of the Covid-19 lockdown and the economy regains some sense of normality.

The BNZ/BusinessNZ's performance of manufacturing index rose to 56.3, its highest level since early 2018, and up from a level of just 39.7 in May and an all-time low 25.9 in April. A reading above 50 indicates expansion while a reading below 50 means activity is contracting. Still, the employment component of the index came in at 48.5, an improvement from 39.2 in May, but still indicating job losses.

Doug Steel, an economist at Bank of New Zealand, said manufacturing activity had picked up as the restrictions on the economy were lifted, and that NZ was outperforming many of its peers.

"The turnaround tallies with suggestions that NZ is enjoying more freedoms than many elsewhere after undergoing Covid restrictions that were tighter than most," Steel said. "But, given the extent and duration of the pain, it is going to take some time to repair."

Steel said the weak employment reading showed how much pressure manufacturers were still under, despite the step in the right direction.

"This is a clear indicator that, despite some improvement in new orders and production from the horror lows of recent months, the recovery in activity to date has not been strong enough to stop the sector reducing staff levels overall," Steel said.

Manufacturers laying off staff was an indicator that employers lack confidence that the recovery will be sustained.

That's been highlighted again today with the news that BlueScope Steel has a strategic review underway of its NZ Steel and Pacific Steel businesses as it struggles to keep the local businesses financially viable.

And just last week, Rio Tinto pulled the pin on the Tiwai Point aluminium smelter, saying it can't afford to keep it operating in the current environment, and giving notice that it will shut down the operation in August next year.

BNZ's Steel said much of the recovery in the index had been from pent-up demand after the lockdown, and that momentum would likely persist in July. Food and beverage manufacturing - which had largely been deemed essential services and able to operate through the restricted period - had recovered the most, he said.

BusinessNZ manufacturing executive director Catherine Beard said the growth was welcome, given the difficult period experienced over the last three months.