Survey shows construction is boosting sector but concerns grow about Oz market.

A barometer of manufacturing is pointing to better weather for the sector.

The BNZ-Business New Zealand performance of manufacturing index (PMI) jumped 4.8 points last month to 55.2 - its highest reading since last May and a level exceeded only four times in the past five years.

A reading above 50 indicates the sector is expanding.

"As positive as the January headline PMI result looks, it is not one to get overly excited by just yet," said BNZ economist Doug Steel. "After all, it is just one month and the implied growth is still coming off a low base.


"Moreover, while a big lift in new orders is encouraging for future activity and employment, the current employment index remains mildly in contraction territory."

The survey's indices for production, sales, finished stocks and new orders all strengthened, but employment slipped to 48.4.

"The jobs component is still the missing ingredient before we can say this thing has legs," Steel said. "But sales are increasing, production strong and new orders firm. If that was to continue surely jobs will follow."

Much of the pick-up relates to construction.

Canterbury/Westland is the strongest region and non-metallic mineral product manufacturing (which includes cement) much the strongest industry.

Reserve Bank research on the sector noted that the steep fall in manufacturing output during the recession was in domestic sales, much of which goes to the construction sector, while exports held their ground.

It estimates a 1 per cent increase in construction activity requires a 0.4 per cent increase in manufacturing. "That's where the pick-up in manufacturing in coming years will come from, as the much anticipated rebuild gets into full swing," Steel said.

The food processing sector had also remained strong, he said.

The fly in the ointment is Australia - the market for about half of New Zealand's manufactured exports.

"In the December PMI survey, for every respondent who noted an improvement in business across the Tasman, there was one who reported deterioration," Steel said. "The balance of respondent comments on the Australian market in the January survey has swung more negative. Much more negative, to the extent that negative comments outweighed positive ones by a ratio of eight to one."

The equivalent survey in Australia is deep in contraction territory at 40.4, much more so than the eurozone or Japan.

It was no wonder the New Zealand dollar was starting to move higher against the Australian dollar, he said.