Things are improving, but off a very low base

4 September 2009

Things are improving, but off a very low base

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during August 2009, shows total sales in July 2009 decreased 34% (export sales decreased by 48% with domestic sales decreasing 7%) on July 2008.

The NZMEA survey sample this month covered NZ$330m in annualised sales, with an export content of 54%.

Net confidence rose to -17, up from the -27 result reported last month, the highest rating since February 2008.

The current performance index (a combination of profitability and cash flow) is at 95, up from the previous month’s 91, the change index (capacity utilisation, staff levels, orders and inventories) rose to 97 from 96 last month, and the forecast index (investment, sales, profitability and staff) is at 99, up on the previous month’s result of 96.  Anything less than 100 indicates a contraction.

The reported constraints were: 8% capacity and 92% markets.

Staff numbers for July decreased year on year by 40%.

“Low sales numbers are persisting for manufacturers despite an expectation that things are starting to pick up,” says NZMEA Chief Executive John Walley.  “Lead times remain short and customers are ordering at the last minute increasing uncertainty.”

“A year ago high volumes somewhat compensated for the margin erosion associated with a high dollar; today a high dollar and low sales are really, really hurting.”

“There has been comment that the business mood is now positive, but saying that things are improving would be a more accurate comment.  One respondent commented that things have improved, they are now just awful, an improvement on truly awful.”

“The major positive in this survey is that confidence is the highest it has been in almost a year and a half.  The improved rating reflects the hope that new orders are more than just restocking and that there is real demand out there.  All three composite indexes showed improvement.”

“The outlook for manufacturers and exporters for the rest of this year and the start of next will largely depend on New Zealand’s growth pattern as we emerge from the crisis.  There have been some worrying signs that the housing market is starting to pick up again and this could push interest and exchange rates up further damaging growth prospects in the tradeable sector.  On the other hand, if the Reserve Bank cuts the OCR next week and takes more action on the exchange rate, and we see broader policy changes flagged by the Government, we will see a more stable growth pattern.”

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