Manufacturing expansion weakens slightly in May
Manufacturing expansion weakens slightly in May
New Zealand manufacturing expansion weakened slightly in May but the outlook still remains positive, according to the latest ANZ-Business NZ Performance of Manufacturing Index (PMI).
New Zealand's PMI value declined slightly from 54.8 in April to 54.1 in May (a PMI reading above 50 points indicates expansion and below 50 indicates decline). This remains 4.5 points higher than May 2003.
Three of the five sub-indexes recorded expansion in May (production, new orders and deliveries of raw materials), while the employment index was broadly stable and the finished stocks sub-index recorded a moderate decline.
The decline in finished stocks is encouraging as it suggests manufactures sales were higher than production in May. It was the second consecutive month that finished stock levels have fallen and resulted in an increase in production levels in May compared with April. New orders (58.2) was again the highest of the sub-indexes, indicating a reasonable level of expansion is still expected.
All regions recorded expansion, with the Canterbury/Westland region again indicating the strongest level of expansion. Production increased again in Otago/Southland but the index was pulled down by further declines in employment and stock levels. New orders in the region were the strongest since November 2003.
Seasonal issues were noted in food, beverage & tobacco, with a slowing in meat processing the main factor reported. This also had impacts on the petroleum, coal, chemical & associated product sector, as a supplier of plastic packing to the meat processing sector.
Export activity remains mixed, with more firms reporting a pick-up in new orders from Australia, Japan and the U.S., while others were still finding export orders difficult due to the value of the New Zealand dollar. Competition from imports and higher raw materials prices in the chemicals sector continue to be reported as concerns. Improving export markets, especially Australia and Japan, contributed to stronger growth in new orders in the wood & paper product sector.
Manufacturing Expansion Slows
FOR THE MONTH OF MAY 2004
The ANZ-Business NZ Performance of Manufacturing Index (ANZ-Business NZ PMI) is a monthly survey of the manufacturing sector providing an early indicator of activity levels. The ANZ-Business NZ PMI contains data obtained through Business NZ’s regional organisations: Employers’ & Manufacturers’ Association (Northern), Employers’ & Manufacturers’ Association(Central), Canterbury Employers’ Chamber of Commerce and Otago Southland Employers’Association.
When interpreting the data, a PMI reading above 50 points indicates manufacturing is generally expanding; below 50 indicates it is contracting; the distance from 50 indicates thestrength of expansion or contraction.
The ANZ-Business NZ Performance of Manufacturing Index stood at54.1 for the month of May. This was down just 0.7 points from April, but was 4.8 points lower than in March. Incomparison with May 2003 (49.6), the 2004 value showed stronger activity.
New orders (58.2) remained the strongest value in May. For the last seven months the new orders sub-index has recorded the highest value of all sub-indexes. The production index increased 0.9 points from April to stand at 55.6, while the deliveries of raw materials indexwas down to 52.2 for May. Finished stocks declined slightly in May, again recording 48.4, while employment was unchanged (50.4).
Activity by sector was mixed, but most recorded a moderate level of expansion. The food,beverage & tobacco sector reached the lowest point (49.8) since the survey began in August 2002. The strongest result was again for wood & paper products (58.9), while the machineryand equipment sector was the next highest with 55.9.
All four regions recorded expansion during April. Canterbury/Westland (57.3) continues tolead the other regions, again recording the highest level for May. The Northern region (55.7)recorded the next highest level of activity, while the Central (52.0) and Otago/Southland(51.3) regions also experienced a slight expansion. For the Otago/Southland May was the first month of expansion in 2004.
Large firms (101+ workers) continued to record the highest level of expansion for the month(60.3), followed by small-to-medium firms (11-50 workers), on 55.0, and medium-to-large firms (51-100 workers) on 53.6. Micro firms (1-10 workers) again declined marginally in May (49.4).
Seasonal issues were noted in the food, beverage & tobacco sector, with a slowing in meatprocessing the main factor noted. This also had impacts on the petroleum, coal, chemical &associated product sector, a supplier of plastic packing to the meat processing sector.
Export activity remains mixed, with more firms reporting a pick-up in new orders from Australia, Japan and the US, while others were still finding export orders difficult due to the value of the New Zealand dollar. Competition from imports and higher raw materials prices inthe chemicals sector continue to be reported as concerns. Improving export marketscontributed to very strong growth in new orders in the wood & paper product sector.
The ANZ-Business NZ production diffusion index stood at 55.6 for May. This was 0.9 pointshigher than April and 5.8 points higher than in May 2003, but well down on the 2004 peak of61.2 in March. The wood & paper product sector (60.0) recorded the strongest level of expansion in production during May, followed by the machinery & equipment sector (56.9). All other sectors expanded in May.
The Northern region (58.6) recorded the highest level of expansion of the four regions, the first time since February 2003. Canterbury/Westland region (58.2) followed slightly behind, while the Central (52.9) and Otago/Southland (51.9) regions recorded a slight increase in production.
The ANZ-Business NZ employment diffusion index (50.4) was stable in May, an insignificant movement from 50.2 recorded in April. It was 1.6 points higher than in May 2003.
Employment activity levels were subdued across sectors. The food, beverage & tobacco sector (43.6) had the highest level of decline, reversing the expansion recorded in April (53.4). The machinery & equipment sector (48.3) again recorded a slight decline, while small increases were recorded in the wood & paper product (52.5) and metal product (52.0) sectors.
Two of the four regions recorded declines in employment during April. The Northern (53.9) and Canterbury/Westland (51.0) regions recorded weak expansion in employment, while the Central (49.4) and Otago/Southland (44.2) regions recorded declines.
The ANZ-Business NZ new orders diffusion index (58.2) remained the highest value of the five diffusion indexes for May. The May value was 1.4 points lower than April (59.6) but was 7.9 points higher than in May 2003 when an index of 50.3 indicated no growth in orders.
The wood & paper products (70.0), machinery & equipment (60.3), and metal product (58.2) sectors all recorded a high level of expansion. In contrast, the food, beverage & tobacco sector (53.8) recorded a slight expansion in new orders, and the petroleum, coal, chemical & associated product sector recorded no change (50.0).
The Canterbury/Westland region (64.3) recorded the highest level of expansion, followed by the Northern region (59.4), Otago/Southland (57.7) and the Central region (54.1).
The ANZ-Business NZ finished stocks diffusion index remained at 48.4 for May 2004, indicating a slight reduction in finished stock levels. This is the first time in the 22 months the survey has been running that finished stock levels have fallen in consecutive months.
Declines were recorded in the petroleum, coal, chemical & associated product (46.6), metal product (46.9) and food, beverage & tobacco (48.7) sectors
Canterbury/Westland (52.0) recorded a slight expansion in finished stocks. All other regions recorded declines, with the biggest fall in the Otago/Southland region (46.2).
The ANZ-Business NZ deliveries of raw materials diffusion index declined 3.6 points from April to stand at 52.2 for May 2004 but was 3.2 points higher than May 2003. The May result was the weakest since August 2003.
Sector results were mixed. The strongest expansion was in the machinery & equipment sector (56.9), while declines were reported in the food, beverage & tobacco (46.2) and wood & paper products (47.5) sectors
Deliveries of raw materials were again strongest in the Canterbury/Westland region (54.1). The Central (52.3) and Northern (51.6) regions reported slight expansion while the Otago/Southland (50.0) region recorded no change.