Big jump in new manufacturing orders

A record lift in new orders in the manufacturing sector has been recorded in the latest survey by BNZ Capital and Business New Zealand, leading to optimism about a recovery.

The seasonally adjusted Performance of Manufacturing Index (PMI) rose to 46.2 in June. This is an increase of 3.1 points from May and 1.2 points from June 2008.

The two key indicators of production (47.6) and new orders (52.2) rose 5.6 and 10.6 points respectively.

The significant increase in new orders was the largest month-to-month increase in the history of the survey, surpassing the 9.4 point lift between May and June 2004.

A PMI below 50 indicates manufacturing is contracting. PMI values for June in the years 2003-2008 ranged from 45 and 62.8, with an average of 53.4.

Business NZ chief executive Phil O'Reilly said that there were various aspects of the June result that may point towards a stronger second half of the year for New Zealand's manufacturing sector.

"New orders, which provides a future indicator of production, was positive for the first time since April 2008, while production was also at its highest level for nearly a year."

BNZ Capital senior economist Craig Ebert also said the fact that the new orders sub-index had made it into expansion territory was encouraging.

"There are increasing signs the sector is beginning to see some light at the end of the tunnel. Of course, it's still a long, dark tunnel. But the big jump in the new orders index gives hope of some locomotion in activity before too much longer," said Ebert.

O'Reilly said the extent of any move into overall expansion would depend on the continued strength of new orders.

Employment was still struggling, and may be the last indicator to head towards the path to recovery.

Unadjusted activity for June showed more positive signs for the South Island. The Canterbury/Westland region (48.8) experienced its third consecutive lift in activity, reaching its highest level since December 2008. The Otago/Southland region (48.8) recovered from the sub-40 result in May, and also posted its highest figure since December 2008. For the North Island, the Northern region (41.7) dipped back to the level experienced in March, while the Central region (44.7) improved from the 36.1 result in May.

- NZPA