Domestic manufacturing sales robust, but weaker exports

Domestic manufacturing sales robust, but weaker exports - 5 February

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during January 2016, shows total sales in December 2015 decreased 2.84% (year on year export sales decreased by 10.76% with domestic sales increasing 9.02%) on December 2014.

The NZMEA survey sample this month covered NZ$226m in annualised sales, with an export content of 45%.

Net confidence fell to 18, down from 24 in November.

The current performance index (a combination of profitability and cash flow) is at 101, down from 106 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 100, down from 103 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 107.33, down on the last result of 110.67. Anything over 100 indicates expansion.

Constraints reported were 76% markets, 12% production capacity and 12% skilled staff.

Net 12% of firms reported a modest rise in productivity in December.

Staff numbers for December increased 0.36% year on year.

Tradespersons, supervisors, managers, operators/labourers and professional/scientists reported a moderate shortage.

“Domestic manufacturing sales have bounced back up, after two months of flat results and another good improvement in September. Conversely, it appears some exporters are going through a period of weaker demand over the last few months – this may reflect a more uncertain global environment. Overall we are seeing more evidence for a relatively strong domestic economy.” says Dieter Adam, Chief Executive of the NZMEA.

“Accompanying this was a reduction in all of the index measures, however all three stayed in expansion mode. The forecast index, which indicates investment, sales, profit and staffing expectations, stayed high at 107.33, coming off the back of the most positive result recorded since 2004 in November (110.67) – there remains a fair chunk of optimism for the future.

“The Reserve Bank of New Zealand (RBNZ) chose to hold the OCR at 2.5% last week, though opened up the possibility of additional easing. Further easing would be helpful to the manufacturing and exporting sector, to boost growth, better align our interest rates with those around the world, and help continue our currencies downward correction – this week saw a 3c rise against the US$ despite more dairy price falls.

"The RBNZ highlighted, “a further depreciation in the exchange rate is appropriate given the ongoing weakness in export prices.” We also agree with the RBNZ highlighting the risks of the Auckland housing market - more may need to be done to make housing affordable for workers and avoid financial stability risks that could damage the wider economy.

“Last weeks Overseas Merchandise Trade release by Statistics New Zealand did show some brighter results for exporters than our own survey – for example, export values for electrical machinery and equipment manufacturing improved 9% on the previous month and 11.5% year on year, while logs, wood, and wood article manufacturing increased 25.1% on last month and 13.8% year on year."

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