August angst

New Zealand’s manufacturing sector fell further in contraction during August, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for August was 47.2 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining).  This is 2.2 points down from July and the lowest level of activity since November 2011.  In the last three months, the PMI has averaged 48.6.

BusinessNZ’s executive director for manufacturing Catherine Beard said that the August result was obviously not the sign in the right direction in terms of growing the sector, although other manufacturing information releases show the overall picture of manufacturing to be a complex one.

“The recently released StatisticsNZ Economic Survey of Manufacturing showed that despite dips in particular areas of manufacturing, such as simple commodity based products, the other end of the manufacturing scene involving elaborately transformed manufactured goods have done well over recent months with boost in both values and volumes.  In addition, some of the sluggish demand has been due to cyclical movements of commodity products.       

BNZ economist Doug Steel said, “International concerns, including further signs of slowdown in China and Australia, are likely one reason behind the August result. The strong NZ dollar is also a major drag of local manufacturers. The fact that NZ’s PMI is generally in line with international comparators will bring little solace to local manufacturers, but it does add some context.”

All five seasonally adjusted main diffusion indices were in contraction in August, the first time this has occurred since October 2011.  The worst result was for employment (45.4), which fell 2.1 points from July and the lowest result since July 2009.  This was followed by production (47.6), which fell 1.9 points.  The remaining sub-indices were in a very tight band of activity, with new orders and deliveries both on 48.1, while finished stocks (48.0) was the only sub-index to improve, rising 0.4 points from July. 

Despite the main results showing overall contraction, unadjusted results by region was not quite as negative.  The Central region (52.7) again led the way, increasing 2.0 points from July, and the first time it has led regional activity since March this year.  This was followed by the Otago/Southland region (50.9), which went back into expansion after two consecutive months in contraction.  Unfortunately, the two largest manufacturing regions both suffered a sizeable drop in activity, with the Northern (45.4) and Canterbury/Westland (45.9) regions experiencing similar levels of decline.

Click here to view the August PMI.
Click here to view seasonally adjusted & unadjusted time series data.