Southern manufacturing worst-hit

Otago-Southland manufacturers are suffering the worst of any in the country by a wide margin, according to the latest BNZ-Business New Zealand performance of manufacturing index (PMI).

The Otago-Southland index slipped to 37.6 points in March - its lowest recorded reading.

A reading above 50 shows manufacturing activity is expanding and below 50 shows a contraction.

In March last year, the regional index was 46.3.

Nationwide, the index indicated some ongoing problems in the country's manufacturing sector.

The seasonally adjusted national PMI increased 1.8 points in March from February to 40.7, but it is still the third lowest since the survey began.

The 2009 result was also 6.5 points below the previous lowest March figure.

The manufacturing sector has now been in contraction for 11 months.

Business NZ chief executive Phil O'Reilly said recovery in the sector seemed some distance away.

"The first quarter of 2009 has shown to be considerably worse than previous years, and further months of contraction are expected, given comments received from respondents."

BNZ senior economist Craig Ebert said New Zealand's manufacturing industry remained in clear distress.

"It's a chorus of concern. It's not even telling us that manufacturing activity is about to stabilise, let alone start expanding again, as many are still hoping for before too much longer."

The PMI was in line with last week's quarterly survey of business opinion.

"From a broad perspective, both surveys clearly suggest manufacturing remains on a downward trajectory."

The quarterly survey results were as much a consequence of deliveries within New Zealand falling as they were to do with dropping export sales, he said.

It was not just the global collapse that was impinging on local production but also a slow-down domestically, which was presumably related to the pull-back in capital expenditure that was believed to be occurring.

There seemed little around to stem the losses in the near term, Mr Ebert said.

New orders in the March PMI of 40.6 remained in contraction and there was a lot of feedback in the latest index about a lack of forward orders.

Falling activity and sales, along with collapsing profitability, was the reason employment in the manufacturing sector was being pruned at a faster rate.

The PMI jobs' indicator hit an all-time low of 38.7.

Although the PMI was not yet seven years old, the much longer-term staffing indicators from the quarterly survey were, on average, the weakest on record and that survey went back to 1961, Mr Ebert said.

"You'd have to be a pensioner to have had grown-up experience of that previous point of depression."

Broadly speaking, Mr Ebert predicted that the country's manufacturing sector would continue to struggle for the near-term.

What was equally important, was how well manufacturers could get profitability back on a sustainable footing.

"While such a process obviously doesn't augur well for staff, suppliers and investors, the sooner and more efficiently this can occur, the more we can have confidence in forecasting to the next inevitable period of sustained growth."