PMI, survey paint a ‘broadly dour picture’

While it is good to see the sector not declining further, it remains stuck in a

tight band of contraction

BusinessNZ’s executive director for

manufacturing Catherine Beard

NEW Zealand’s manufacturing activity shrank for a third month in September as production hit its lowest level in more than seven years.

The Bank of New ZealandBusinessNZ performance of manufacturing activity index was unchanged from August at 48.4 points, remaining below the 50 level that separates expansion from contraction.

But in Otago and Southland, overall activity in the manufacturing sector was 54.5 points, the first month to have experienced expansion since May.

‘‘While it is good to see the sector not declining further, it remains stuck in a tight band of contraction,’’ BusinessNZ executive director for manufacturing Catherine Beard said.

‘‘The key to lifting it back into expansion will be a sustained boost to both new orders and production in the months ahead.’’

The latest PMI reading showed the production subindex fell to 46.2 points from 49.2 in August. It was well below its longterm average of 53.9.

‘‘With this, we should probably expect manufacturing activity to contract again in the 3Q GDP accounts, having done just that in 2Q,’’ BNZ senior economist Craig Ebert said.

‘‘Having said this, if it’s a manufacturing recession then it’s an extremely mild one compared to what the industry went through in 200809.’’

It touched a low of 36.1 points in November 2008.

Otago Southland Employers Association chief executive Virginia Nicholls said new orders were 56.3% and production levels were 53.1% while employment levels and stocks of finished products were the same.

It was encouraging that new orders were now in expansion. Export log prices had declined which was affecting that sector, Mrs Nicholls said.

The construction sector was busy with commercial projects while the Christmas rush had begun for those working in residential homes.

Gross domestic product expanded 0.5% in the three months ended June, following a 0.6% rise in the March quarter. It was up 2.1% from the corresponding quarter a year earlier. Manufacturing activity fell 0.8% on the quarter, weighed down by a 2.8% contraction in food, beverage and tobacco manufacturing.

Yesterday’s manufacturing report showed the finished stocks index fell to 48.8 points from 52.8 in August. Deliveries fell to 46.4 points from 47.9 in the previous month.

The employment measure just managed to expand at 50.0 points from 49.9 in August. New orders were also above the line for expansion at 50.1 points from 45.9 in August.

Mr Ebert said both the PMI and the New Zealand Institute of Economic Research’s recent Quarterly Survey of Business Opinion painted a ‘‘broadly dour picture’’ around manufacturing. However, each of them also held ‘‘some hope that the worst might just be passing’’.

The PMI’s new orders index had ‘‘recovered a semblance of stability’’ and the employment component had also lifted after being at 42.3 points in July.

In the case of the QSBO, while many of its activity indicators related to the prior three months were poor, expectations for the coming three months were, by comparison, relatively sound, he said.

Last week’s QSBO showed manufacturers were still the most pessimistic of all sectors, even though their confidence lifted slightly.