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Manufacturing Activity Remains Flat In August

Contributor:
Fuseworks Media
Fuseworks Media

The month of August saw the manufacturing sector remain flat for the second consecutive month after steady expansion in the first half of the year, according to the BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August stood at 49.3, which was down 1 point from July (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining).

Unadjusted regional activity was a mixed bag, with a lift in activity in the Northern and Canterbury/Westland regions, and contraction in Central and Otago/Southland regions.

BusinessNZ's executive director for manufacturing Catherine Beard said that the results show manufacturing is in a fairly neutral or flat phase currently, and that the results are quite consistent with the Australian manufacturing PMI (51.7) and the global manufacturing PMI (53.8), though the United States is still in expansionary mode for August at 56.3.

"While the results from Canterbury manufacturers were collected for the period prior to the Earthquake, it is not expected that earthquake will have an overly negative impact on manufacturing in the region since the larger manufacturers escaped relatively unscathed due to newer buildings and most were only briefly interrupted. While some Canterbury manufacturers will be concerned about a possible downturn in local trading and getting access to buildings, new spending to rebuild the region is expected to have a positive economic benefit in the medium term."

BNZ economist Doug Steel said the results point to a sector that is currently jogging on the spot rather than pushing forward.

"As concerning as the mediocre level is the rather brisk slide from a solid 55.1 average in the first half of the year. The drying up of new orders through July and August is especially concerning.

"Which way next from this stalling remains to be seen. Our pick is that this is a bump in a slow and bumpy recovery and we anticipate some improvement as we move into 2011, if not before. Possible drivers for this include a favourable NZD/AUD crossrate, robust Australian economic growth, a recovery in agricultural production from last summer's drought and a lift in demand as repair and reconstruction gets underway after the Canterbury earthquake."

Three of the five of the seasonally adjusted main diffusion indices were in expansion, though slightly softer than July with employment (51.3), production (51.2) and finished stocks (50.4). New orders (47.2) were in contraction, down 1 point from July, while deliveries (49.4) were also in contraction, with much the same result as July.

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