Some negativity in manufacturing

Catherine Beard
Catherine Beard
New Zealand's manufacturing activity rose in January but comments from manufacturers provided another angle to the story, ManufacturingNZ executive director Catherine Beard said.

The BNZ-BusinessNZ Performance of Manufacturing Index rose 4.5 points in January to 55.6. Above 50 indicates expansion and below 50 indicates contraction.

Ms Beard said while it was positive to see the index rebound after a sizeable drop in expansion during December, the proportion of positive comments was down by a fair margin in January.

Positive comments in January reached 50.7%, down from 53.3% in December and 65.1% in November.

"While seasonal factors such as Christmas and holidays are typically mentioned around this time of the year, those outlining negative comments have also focused on recent uncertainty that has led to softening activity and a slow start to the year for some."

The Otago-Southland index fell to 48.2 points from 58.7 in December.

Otago-Southland Employers Association chief executive Virginia Nichols described the fall as significant.

It was difficult to know if it was a typical result for January, as the average for January for the past four years was 48.3. It could be a reflection of change for manufacturers and next month’s survey would be an important indicator.

The proportion of positive comments in January from the region’s manufacturers, although lower than previous months, was still 53%, she said.

Some manufactures were busy building stock for the Chinese New Year celebrations.

Wood and product manufacturers were busy supplying the construction industry for both domestic and commercial buildings.

Metal product manufacturing was positive and there was reporting of some ongoing long-term contracts.

Cadbury Confectionery was working through the full site closure scheduled for next month, Mrs Nicholls said.

BNZ senior economist Craig Ebert said it was not clear from comments from respondents what had driven the recent volatility in the PMI.

However, the component indices were telling. New orders rebounded to 55.6 from having slumped to 49.7 in December.

"This is consistent with the idea that with a government in transition, firms deferred some of the calls on big-ticket expenditure until after the luxury of the festive break."

Local manufacturers did not seem to have the luxury of deferring decisions on hiring labour, he said.

The employment index of the PMI rose to 52.56 in January, after holding up well in December at 51.5. Job growth held up well in January.

January’s PMI result was "obviously encouraging", but Mr Ebert remained conscious of vulnerabilities in the food processing industries.

Weather played a major part in the vulnerabilities and not only the extreme dry conditions which took hold of the country late last year which invoked some early meat processing and dented dairy output.

Even with the abundant rain in the new year, and accompanying record-high temperatures, had not been conducive to a "decent bounce back" in milk production, he said.

The New Zealand PMI had led the world for the last five years or so, but the global PMI had now caught up, Mr Ebert said.

The global PMI was a seasonally adjusted 54.4 in January — hardly different from the 54.5 result in December.

"This coincides with a much more concerted impetus to global growth now after a relatively slow and disjointed 2016."

The sustained heights of the global PMI suggested the international investment cycle was clicking into place after a long period of reluctance, he said.

That promised to self-sustain the global economic expansion and should be good for manufacturing industries, New Zealand included.

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