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Economic Survey of Manufacturing

Economic Survey of Manufacturing

Manufacturing conditions for Dec 2002 quarter Statistics NZ’s Economic Survey of Manufacturing (ESM) for the Dec 2002 quarter indicates some weakness in manufacturing, with a drop in seasonally adjusted manufacturing sales of 0.9%. But this provides only one part of the overall manufacturing picture - it is important to also incorporate results from other surveys as well as further analysis of data from the ESM for a complete understanding of the current position of NZ manufacturing.

Overall sales results for the ESM The 0.9% drop in seasonally adjusted sales during the Dec quarter follows a similar pattern to the Dec 2001 quarter, which had a 0.2% fall. The Dec 2002 quarter decline follows increases of 5.2% and 2.3% for the June and Sept 2002 quarters. As well as seasonally adjusting the data, price movements should also be adjusted to track accurate movements in sales. When the data is based on Dec 1997-quarter prices, seasonally adjusted manufacturing sales can be seen to have increased by 0.1% over the Dec 2002 quarter. This follows a 4.1% and 3.5% increase during the June and Sept quarters respectively. Over the Dec 2002 year, sales were up 4.4% compared with a 0.6% increase over the Dec 2001 year.

Comparison with ANZ Business NZ PMI survey Graph 1 shows the Performance of Manufacturing Index (PMI) values for Oct, Nov and Dec at 61.5, 65.0 and 56.4 (a value above 50 indicates expansion; the distance from 50 indicates the strength of the expansion). Although the PMI and ESM both displayed positive growth, PMI values for the Dec quarter indicated stronger expansion, with three of the five sub-components of the main PMI showing strength through the Dec quarter (production, new orders and deliveries). This difference may be due to methodology: the ESM has a seasonally adjusted component, while the PMI is still at the stage where seasonally adjustment is not possible (the PMI would require 13 months’ data to begin the seasonal adjustment while the survey only began at Aug 2002). Although the PMI by itself is a reliable indicator of future activity in the manufacturing sector, meaningful comparison between the PMI and the ESM should take place when the PMI is at a stage to compare apples with apples.

Graph 1: ANZ-Business NZ PMI Aug 2002–Jan 2003

Sales by manufacturing sectors Eleven of the 15 industry sectors recorded a decline in seasonally adjusted sales over the Dec quarter. Basic metal manufacturing had the largest fall (-7.1%), followed by machinery & equipment manufacturing (-4%). The petroleum & industrial chemical sector experienced the strongest sales growth (+22.6%). Over the Dec year results were better for manufacturing with 12 of the 15 sectors recording increases in seasonally adjusted sales, led by the non-metallic mineral product sector (+17.3%). As Graph 2 shows, when results are again adjusted for price movements, the Dec 2002 year results show 14 of the 15 sectors recorded increases in seasonally adjusted sales, with only the paper & paper product sector experiencing a fall (-7.9%). While the state of the domestic economy is still positive, the value of manufactured exports to some countries remain sluggish or in decline. Basic manufactured sector exports to Japan and ‘other countries’ have been generally declining over the last year, while exports to the U.S.A and Australia have stayed flat. The quick appreciation of the NZ$ over recent months has not helped export receipts, especially from the U.S.A and Australia, where the NZ$ has risen 16% and 8.8% respectively since Sept 2002.

Continued wage & salary increases Ongoing comments in the PMI on the difficulty of finding staff may explain the indication in the EMS of a lift in wages and salaries during the Dec 2002 quarter (+5.4%), and the Dec 2002 year (+8.8%). According to Statistics NZ’s Quarterly Employment Survey, total average hourly earnings for manufacturing were up 4.6% over the Nov year, more than the 3.6% recorded for all industries combined. The EMS for the Dec 2002 year showed large wage and salary increases in wood product manufacturing (+18%), meat & dairy product manufacturing (+15.2%), and other food manufacturing (+13.7%). The only sector to show a decline in wages and salaries was printing, publishing & recorded media (-5.6%). Statistics NZ’s Household Labour Force Survey showed that numbers employed in manufacturing rose 2% (to 287,700) for the Dec quarter, but fell by 1.2% over the Dec year. This compares with a quarterly and yearly rise of 2% and 2.4% respectively for all industries combined. This is consistent with the only moderate growth recorded in the PMI employment index.

Purchases and operating expenditure fall The manufacturing sector spent less (purchases and operating expenditure) in the Dec 2002 year (-4.0%), compared with a 17.3% increase in spending in the Sept 2002 year. Spending in the meat & dairy sector dropped 19.5%; spending in the printing, publishing & recorded media sector dropped 11.0%. The non-metallic mineral product sector had the biggest expenditure increase (+19.4%), followed by the wood product sector (+17.2%).

Further stock increases for Dec quarter The value of raw materials stood at $2,674m for the Dec 2002 quarter, up 3.9% over the year. The value of finished stocks stood at $6,179m, 36.2% higher than the Dec 2001 quarter, and the second yearly increase over 30% (the Sept 2002 yearly increase in finished stocks was 31.6%). This can be attributed to large increases in finished stocks for the meat & dairy sector, up 166.6% and 159% for the Dec and Sept years. Restructuring of the dairy industry in 2002 means dairy manufacturers are now more likely to build up stocks instead of automatically selling to producer boards. This restructure will result in overly large yearly percentage changes in finished stocks until four quarters of data have passed since the changes in the dairy industry took effect.

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