Manufacturing still showing resilience

June 14, 2007

Manufacturing still showing resilience

Manufacturing activity increased in May according to the Business NZ Performance of Manufacturing Index (PMI). May's seasonally adjusted PMI, at 56.8, was up 2.4 points from April, but down marginally on the 57.0 recorded in March.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for May in 2003-2006 were 52.3, 56.8, 52.0 and 58.1 respectively.

Business NZ economist John Pask said manufacturing has faced tough issues including an ongoing high dollar, rising interest rates and cost pressures, but the sector continues to defy the doomsayers. "The high dollar is still the hot issue, but the continued growth in new orders augurs well for future growth prospects," he said.

All five seasonally adjusted main diffusion indices recorded expansion in May. Production (56.8), Employment (51.3), new orders (59.1), finished stocks (57.8) and deliveries (53.8) were all holding up. More importantly, all main diffusion indices showed increased expansion compared to April, apart from deliveries which was down marginally on April's result on 53.9.

Unadjusted activity in May shows mixed results in all the regions examined. The Northern region experienced a slight contraction in activity (49.8) although this has improved from April when the index stood at 48.7. Activity was strong in the Central (54.8), Canterbury/Westland (58.0) and Otago/Southland (61.9) regions for April than previously, with these regions continuing to show healthy expansion.

There is still a disparity between the relatively high PMI value and the preponderance of negative comments. For May, the proportion of negative comments - largely about the high dollar - was 64%, down from 69% for April. Hikes in interest rates are also becoming an issue, and some companies also mentioned a slowdown in demand, difficulties in expanding due to skills shortages, and rising costs. On the positive side, a few firms mentioned the ability to secure new orders through greater efficiency.

ENDS

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