Manufacturing down but looks at turning point

New Zealand’s manufacturing activity contracted in December as production and new orders faltered, but the sector may be at a turning point if recent sentiment surveys are correct.

The Bank of New Zealand-BusinessNZ performance of manufacturing activity index fell 1.9 points to 49.3, sliding back below the 50 level that separates an expansion in activity from contraction.

Production remained the biggest drag on manufacturers, with the sub-index slipping to a reading of 48.2 from 49.4 in November. New orders, meanwhile, moderated to 51 from 54, indicating some growth in demand.

Employment remained in negative territory as it inched up to 49.9 from 49.1 while deliveries dipped to 50.7 from 52.6. Finished stocks, meanwhile, were at 52.8 from 49.2, pointing to some inventory build-up.

BNZ economist Craig Ebert said the December reading was “disappointing” as it fell well below the long-term average of 53.3 and was the lowest since September.

Still, this week’s business outlook survey from the New Zealand Institute of Economic Research hinted at growing optimism among manufacturers. Ebert said manufacturers surveyed by the NZIER expect a noticeable pick-up in output over the coming three months after snapping three quarters of shrinking output in the December period.

Ebert said there was also a sense of a turning point, in that profit indicators were looking much less dire, as cost indicators, while still strong, were not as intensive as they were over the earlier part of last year

New Zealand’s PMI fared better than Australia, Japan, the Eurozone and the UK but was behind China and the US.