Manufacturing shows good lead-in to Christmas

Manufacturing expansion shows good lead-in to Christmas

Manufacturing showed healthy expansion approaching Christmas, despite the increasing value of the New Zealand dollar and a downturn in employment in the sector, according to the Business NZ Performance of Manufacturing Index (PMI).

October’s seasonally adjusted PMI, at 56.4 was up 5.4 points from September, and was the second highest amount of expansion since the start of 2005.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining.

PMI values for October in 2002-2005 were 57.8, 60.9, 53.0 and 45.9 respectively.

All regions contributed to the overall expansion, led by Canterbury/Westland (64.7) and Otago/Southland (62.4), with Northern (59.3) and Central (57.8) results also positive.

All seasonally adjusted main diffusion indexes were in expansion mode for the first time since May 2006. Two particularly good signs are the bounce-back in production (57.4) from its ‘no-change’ result in September, and the important new orders (60.4) index showing its second highest result since January 2005.

A potential note of caution lies in the employment index, which is hovering close to the 50 mark, after a period of slight decline in the previous four months. Statistics NZ’s data for the September quarter also shows a decline in manufacturing employment, but on a larger scale. November’s PMI should give more indication of whether the decline picked up in both surveys is a positive indicator of improved productivity or a negative one of diminishing confidence within the sector.

Comments from manufacturers in the October PMI were split evenly between negative (50.5%) and positive (49.5%), with concern over the value of the New Zealand dollar the main issue. Given the strength of the NZ$ was a key factor for weak activity in the second half of 2005, further increases may potentially put a dampener on results for the last two months of 2006.

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