The July BNZ-Business New Zealand Performance of Manufacturing Index (PMI) showed a further deterioration in activity levels for regional manufacturers as they continued to face challenging conditions.
"There is a feeling that things are slowing down in general, reflected in a slight drop in employment levels and a tight rein on input purchases. Stocks of finished products are also sitting higher than most manufacturers are comfortable with.
"There is a general sense of unease out there."
The Otago-Southland PMI in July was 47.5 compared with 47.9 in June.
A reading above 50 indicates manufacturing is generally expanding and below 50 that it is declining.
In July last year, the Otago-Southland index was 49 compared with 61.6 in the corresponding month in 2006.
The surge in positive comments last month in the region appeared to have been "a bit of a blip", Mr Simpson said.
"We're in a funny stage. People are thinking about the election and possible changes - thinking about how to get from here to there without having a clear idea about any changes.
"When we are coming into an election, there is a tendency to defer business decisions even though the result is unlikely to tip their decision one way or another. It is an atmosphere of ;wait and see'."
Performance in the regions ranged from 52.5 in Canterbury-Westland down to 44.9 in central.
Nationally, the seasonally-adjusted PMI was 48.8, a slight improvement on June's 45.3, he said.
Bank of New Zealand senior economist Craig Ebert said the small increase in activity was unlikely to be the start of a voyage back to robust expansion.
"There are factors now riding to the rescue of New Zealand's manufacturing sector, but it's part of the rebalancing story. However, there are that many more existing and emerging issues weighing against any immediate relief for the sector."
Even confining comments to the headline PMI, things were still tough for manufacturers, he said.
The June reading of 45.3 was very low in relation to the usual ranges of those types of diffusion indices.
As a rough rule, something near 60 was "rampaging" while anything flirting with 40 was "utter collapse".
Although July's result was "better" than the June figure, things were still going backwards.
There had been some promises of relief for the sector.
The affirmation of an easing cycle in interest rates from the Reserve Bank and the falling exchange rate were two signs, Mr Ebert said.
Since the July PMI survey was conducted, there had been further falls in the currency and a sharp correction in most commodity prices.
"The latter might help relieve the raw material cost pressures that were adding to the distress of manufacturing profitability. Yet we can't get too sanguine about manufacturing prospects, at least not for the foreseeable future."
