Business Update: Economic Survey of Manufacturing

March 2003 quarter

Manufacturing conditions March 2003 quarter
At first glance the fall-off in sales during the March quarter for the Economic Survey of Manufacturing (ESM) seems a standard occurrence. The March quarter is usually sluggish, and the March 2003 quarter was no exception, with sales dropping 2% from Dec, and with the removal of other irregular components, the trend series shows a fall of 1.6% - but after removing price movement effects, the drop in sales from Dec to March was still 2%. Results for previous June quarters tend to show a fairly strong pick up from the March quarter, so June results may indicate whether the March results were a normal fall-off or represent a more general decline in activity. When looking at these results, a key question to ask is whether the quarterly drop in sales is just the ‘March blues’ or whether the downturn in the economy is at work. The results of the ESM, along with other data collected on the manufacturing sector, seem to indicate that the beginnings of the downturn in the economy are starting to be felt by the manufacturing sector. Manufacturers have faced numerous issues over the quarter: aside from the usual post-Christmas fall-off in activity, international tensions, SARS and sluggish economic growth offshore have provided an unfavourable exporting environment. At home, the electricity crisis caused some manufacturers to halt production. As well, the continued rise of the NZ$, particularly against the US$, up 10.6% this year, has damaged profit margins. But exporters to our largest market, Australia, have had some relief, with the NZ$ down by 6.5% this year against the Aus$.

Comparison with ANZ-Business NZ PMI
When comparing the ESM with the ANZ-Business NZ Performance of Manufacturing Index (PMI) graph, the PMI values for Jan, Feb and March were 51.6, 53.0 and 52.7 respectively (see Graph 1), indicating only moderate expansion (a value above 50 indicates expansion, with the distance from 50 an indicator of the strength of the expansion). April results showed a contraction in manufacturing activity. Although the PMI by itself is a reliable indicator of future activity in the manufacturing sector, any meaningful comparison between the PMI and the ESM can only take place when the PMI is at a stage to compare apples with apples, however, the most recent results clearly point towards some softening of the manufacturing sector.

Sales by manufacturing sectors
Nine of the 15 industries surveyed had lower seasonally adjusted sales over the March quarter, compared with 11 and 10 industries during the Dec 2002 and March 2002 quarters. Petroleum & industrial chemical manufacturing had the largest percentage fall over the quarter (-18.5%, or $170m), while the structural, sheet & fabricated metal product sector had the largest percentage increase (+10.7%, or $106m). Results over the March year were more positive with 12 of 15 sectors showing increased seasonally adjusted sales, led by non-metallic mineral products (+17.1%, or $73m). Printing, publishing & recorded media fell most (-4.4%, or $38m). As Graph 2 shows, when results are again adjusted for price movements, the March 2003 year results show 13 of 15 storetypes recording increases in seasonally adjusted sales, led by non-metallic mineral products (+16.3% or $65m). Sales for the printing, publishing & recorded media sector fell by 8.9% or $66m.

Salaries and wages fall
As manufacturing activity falls off after Christmas, the March quarter typically shows a drop in salaries and wages: March 2003 quarter remuneration was down 3.2% over the quarter, but up 7.7% over the year. Broken into hourly earnings, the Feb Quarterly Employment Survey shows total average hourly earnings for manufacturing at similar levels to the Nov quarter, at $18.65. This is 2.5% higher than the same time last year, slightly more than the 2.3% increase in total average hourly earnings for all industries combined. The ESM showed the wood product sector had the largest percentage increase (+25.4%), followed by the other food sector (+14.7%) over the March 2003 year. Remuneration in the basic metal sector fell the most (-7.9%). In terms of value changes, meat & dairy products grew most (+$47m), while printing, publishing & recorded media fell most (-$12m). The ANZ-Business NZ PMI showed variable employment activity over the March quarter, with values of 49.3, 53.8 and 51.7 from Jan to March. The Household Labour Force Survey recorded a 5,800 (2%) quarterly fall. Over the March year the number employed fell by 14,600, or 4.9%, following on from a Dec 2002 year fall of 3,500. Manufacturing is the second largest employing sector in NZ, comprising 14.8% of everyone employed. However, the proportion of those employed in the sector is falling, from 15.9% in March 2002, and 17.1% in March 1998.

Raw materials fall while finished stocks rise
The value of raw materials was $2,602m for the March 2003 quarter, down 2.6% over the quarter, and 0.6% over the year. Finished stocks were up 12.4% over the quarter and 40.5% over the year, following on from strong Sept and Dec 2002 rises. The large increase in finished stocks is partly attributable to restructuring in the meat & dairy sector, but notwithstanding this, a drop in value of raw materials across all sectors may indicate firms are building up finished stock levels due to a decline in sales, which in turn lowers their demand for raw materials. PMI results show deliveries of raw materials indicated only slight expansion, with values of 54.7, 51.3 and 51.4 from Jan to March.

Purchases and operating expenditure fall
There was a quarterly drop in purchases and operating expenditure for March 2003 (-4.4%) and a yearly fall of 3.7%. Meat & dairy product had the largest yearly fall
(-18.3%), followed by printing, publishing and recorded media (-5.5%). The largest yearly increases in expenditure were for non-metallic mineral products (+15.8%) and beverage, malt & tobacco (+15.2%).

Statistics courtesy http://www.stats.govt.nz and http://www.anz.com
Contact: Stephen Summers ssummers@businessnz.org.nz

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