A surprisingly positive mood was starting to emerge among Otago-Southland manufacturers who had faced a tough year so far, Duncan Simpson, of the Otago-Southland Employers Association, said yesterday.
Nearly 43% of those surveyed for the BNZ-Business New Zealand performance in manufacturing index (PMI) in June commented positively on factors influencing business activity.
"This may be coming from a better forward order outlook with the local sub-index in this area sitting at 52.4.
"On the negative side, the exchange rate is being mentioned less but overall input cost increases are hitting home hard with many manufacturers in the South," he said.
Manufacturing activity in the region contracted in June but local manufacturers were more positive.
The local PMI dropped to 47.9 in June, down from 51.8 in May.
A PMI reading below 50 indicates a contraction in activity and above 50 is an expansion.
The local result continued to reflect tough business conditions but there were some pockets of reasonable activity, Mr Simpson said.
"We appear to be doing comparatively better than other regions around the country."
Both the northern and Canterbury-Westland regions (42.2) recorded the same and lowest level of activity since the survey began.
However, the reasoning behind the results was different.
The northern region suffered low production and new orders and Canterbury-Westland saw a general fall in all five sub-indices.
Central fell to 45.6.
The seasonally-adjusted PMI for all of New Zealand fell to 45.7, the second lowest result since the survey began in 2002.
It was also the lowest June value recorded with the previous lowest being June last year (52.6), Mr Simpson said.
Bank of New Zealand senior economist Craig Ebert said it seemed that raw material costs were now trumping the ongoing rises in staffing and other costs as the topical concern for many manufacturers.
"Then again, if ever there was a time that material costs should be a big story, and concern, it would surely be now.
"We are amid one of the biggest commodity booms the world has seen in decades.
And it's not just in oil. Other energy prices are soaring, as are prices for minerals, metals and many basic food products."
Raw material prices had climbed in problematic proportions and could well push higher, he said.
Whether it was steel, chemicals, fuel, plastics or cereals, it was hitting firms hard on the input side.
The added cost pressure was one of the many reasons profitability in the New Zealand manufacturing sector was being hammered.
Profits were also being squeezed by waning revenue.
As demand growth diminished, pricing power faded alongside it, Mr Ebert said.
In the meantime, cash would be king in the economy.
"Running the ruler over your business structure and accounts is to be highly recommended.
"Those who do so - especially in respect of costs and with a push for efficiency gains - will be best placed to weather the storm."
