NZ manufacturing activity slips back in October   11 Nov 2016

Friday 11 November 2016 10:59 AM

NZ manufacturing activity slips back in October, still above long-run average

By Sophie Boot

Nov. 11 (BusinessDesk) - New Zealand manufacturing activity fell in October although it remained ahead of its long-term average.

The Bank of New Zealand-BusinessNZ performance of manufacturing index declined to a seasonally adjusted 55.2 in October, from 57.5 in September. A reading of 50 separates expansion from contraction, with the long-term average at 53.2. Four of the five sub-indexes dropped.

New Zealand's manufacturing sector has almost been in continuous expansion since October 2012, barring a blip in January last year when the PMI slipped into contraction with a reading of 49.8. The economy has been buoyed by a construction boom that started in the post-earthquakes Christchurch rebuild and has extended to Auckland's housing market.

In the latest monthly data, new orders dropped most of the five sub-indices, down 5.6 points to 54.8 and below its historical average of 55. Production fell 3.3 points to 57.9, finished stocks dropped 2.4 points to 52.3, and deliveries declined 1.9 points to 55.7, though all three remained above average, Bank of New Zealand senior economist Craig Ebert said in his report.

"Things were more varied when looking across the industry groupings, however, while large firms (63.6, from 45.0) swapped places with micro firms (51.5, from 59.4) in the first-to-last stakes," Ebert said. "The regional pecking order had Northern in front with an unadjusted 62.8 and Canterbury lagging with 51.2. "

Only employment rose, up 3 points to 53.8, representing "a bonus for the labour market, in that manufacturing has not been party to the surge in nationwide employment over the last year or so," Ebert said.

The slowing in new orders might be seen as surprising given investment intentions outlined in the Quarterly Survey of Business Opinion where firms said they would invest at above average rates in buildings, plant or machinery over the next six months, Ebert said, adding that the strong kiwi dollar will help companies to source equipment from overseas.

"It is true that the trade-weighted exchange rate is relatively high, when looked at on a multi-decade chart. But as to whether it is 'overvalued', who can really say, when the NZ economy is doing relatively better than global peers? We expect the TWI to drift lower over the coming 12 months or so," Ebert said.

(BusinessDesk)

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