Manufacturing activity sinks to new low in October

November 13, 2008

Manufacturing activity sinks to new low in October

New Zealand's manufacturing sector has mirrored offshore results, with activity falling to a record low in October, according to the Bank of New Zealand - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for October stood at 43.5. This was down 3.2 points from September, and is the lowest level of activity since the survey began in 2002. The sector has also been in decline for six consecutive months, which again is a new record.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for October in the years 2002-2007 ranged from 46.0-61.0, with an average score for the previous October results of 55.3.

Business NZ chief executive Phil O'Reilly said the new low point for activity does not bode well for future results.

"The global manufacturing PMI result for October clearly shows New Zealand's current state of play is being mirrored across all countries, with further deepening of the credit market crisis causing significant impacts on production, new orders and employment," said Mr O'Reilly.

"It appears that any gains made via a competitive New Zealand dollar over recent months are being consumed by the downturn in export orders. The nosedive in the level of new orders for October will undoubtedly have ripple effects on production and employment in the months ahead, and hopes for some type of pre-Christmas pick-up in activity looks to be fading fast."

Bank of New Zealand markets economist Mark Walton said New Zealand manufacturers were not alone in suffering, with the manufacturing recession entrenched and widespread.

"It will likely come as little consolation to New Zealand manufacturers, but they are part of a global recession in manufacturing, which is impacting both developed and emerging economies alike," he said.

All five seasonally adjusted main diffusion indices were in contraction and all recorded their lowest values for an October month. Production (43.4) fell back to a level similar to June of this year, while employment (42.5) experienced its ninth straight level of contraction, with most of these months producing a lower value than the previous one. New orders (42.6) dived from September's result, while finished stocks (48.0) produced its lowest value since November 2003.

Unadjusted activity for October showed much of the weakness to be evident at the top of the country. For the North Island, the Northern region (43.7) is yet to produce an expansionary result for 2008, while the Central region (47.0) has remained in a band of 45-47 for the last five months. In the South Island, both regions continued to show expansion in October, with the Canterbury/Westland region (54.3) building on its September result. Lastly, the Otago/Southland region (54.2) produced a similar result to the Canterbury/Westland region.

ENDS

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