Manufacturing activity ends year on weak note

Media release
22 January 2009

Manufacturing activity ends year on weak note

Manufacturing in December improved from its lowest ever level (in the previous month, November 2008) but continued its lacklustre performance, reaching only 42.5, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The December 2008 PMI result was the second lowest monthly result on record and the eighth consecutive month of decline. It was 7.3 points up from November, but 10.7 points down from December 2007.

Business NZ Chief Executive Phil O’Reilly said the improved competitiveness of the New Zealand dollar and the likelihood of further interest rate cuts in coming months brought some hope, but the overall picture was very constrained.

“The November result was extremely poor for the sector, and the upswing in the December result should not be interpreted as a potential path to recovery for manufacturing. Overall, 2008 was extremely tough for manufacturers, with the sector in decline for three quarters of the year.

“Comments from manufacturers for December were some of the shortest and sharpest that we’ve received, focusing on the fundamental aspects of low demand, general economic downturn and uncertainty.”

Bank of New Zealand Senior Markets Economist Craig Ebert said that although there are some substantial cushions coming into play for New Zealand manufacturers, the dominant issue is fast becoming sagging international demand.

“Inventory is accumulating the world over, which is why new orders have plunged just as much as industrial production has over the last couple of months.

Four of the five seasonally adjusted main diffusion indices were in contraction, although improving from November lows. Production (39.9) improved from the sub-30 result in November, while employment (41.9) for the first time since March 2008 improved on the previous month’s performance. New orders (42.2) recovered somewhat in December, with deliveries of raw materials (43.7) producing a similar upturn. Finished stocks (50.5) were the only index to show expansion in December, albeit at a very modest level.

Unadjusted activity for December showed weakness through much of the country. For the North Island, the Northern region (35.4) continued to produce its lowest ever result, while the Central region (45.4) improved slightly from November’s value. In the South Island overall results were generally better with the Canterbury/Westland region (49.4) recovering to a level close to ‘no change’ for December. The Otago/Southland region (51.1) continued to buck the trend with another month of expansion, although this was the second consecutive fall from the previous month.

Click here to view the December PMI
Click here to view the time series data

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMl results are available on www.businessnz.org.nz under ‘PMI Reports’. For more information or assistance with data interpretation, contact Stephen Summers, ph 04 4966564, ssummers@businessnz.org.nz. The Bank of New Zealand - Business NZ PMI (performance of manufacturing index) draws on the depth of member companies associated with Business NZ: EMA Northern, EMA Central) Canterbury Employers’ Chamber of Commerce and the Otago Southland Employers Association. The survey is sponsored by Bank of New Zealand Ltd.

ENDS

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