Slow steady improvement for manufacturing

Manufacturing showed signs of slow and steady improvement last month, with the latest BNZ-Business NZ performance of manufacturing index (PMI) indicating a continuing rise in new orders.

The seasonally adjusted PMI was at 53.3 in February, up 1.2 points from January. A reading above 50 indicates manufacturing is generally expanding.

New orders were constant at 56.1, production up 1.2 points to 53.4, employment up 1.8 points to 51.8, finished stocks expanding for the first time since December 2008 on 50.3, and deliveries up from January at 52.9.

"After six months of solid, if not spectacular expansion, we have now reached a phase where monthly results are consistent, and new orders continue to drive activity, which we would hope will flow through to increasing employment if the trend continues," Business NZ director for manufacturing Catherine Beard said.

But Business NZ also pointed out that the proportion of negative comments made by respondents swung upwards in February to two-thirds, compared to about 55 percent in January, with slow sales and a lack of new orders being common themes.

BNZ head of research Stephen Toplis said the really positive news for manufacturers continued to come from the export sector.

Dairy, wood and fuel exporters appeared to be faring particularly well, while exporters to Australia in general continued to benefit from a resurgent Australian economy and weakness of the New Zealand dollar against its Australian counterpart.

Latest economic data, by and large, supported the optimism in the February PMI, Mr Toplis said.

"The future is looking brighter for manufacturers' supply into the domestic market. At face value, household spending seems like one of the weaker links, but we believe it's on a slow trend improvement as stock-to-sales ratios continue to decline.

"Residential construction is also on the improve, largely driven by strong net migration inflows. However there is no evidence that non-residential will follow suit." Despite the seasonally adjusted expansion, unadjusted results show all regions in decline apart from Canterbury on 59.2, up 9.5 points from January.