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Mixed Signals Again

29 November 2006

Mixed Signals Again

The latest Canterbury Manufacturers’ Association (CMA) Survey of Manufacturers completed during November 2006, shows total sales in October 2006 increased 26% (export sales up around 48% and domestic sales increased just over 9%) on October 2005.

The CMA survey sample this month reported NZ$490m in annualised sales, with an export content of 52%.

Net confidence dropped to -7 down from +15 last month.

The current performance index (a combination of profitability and cash flow) is at 93, down from last month’s 95, the change index (capacity utilisation, staff levels, orders and inventories) dropped slightly to 102 from 103 last month, and the forecast index (investment, sales, profitability and staff) lifted to 101 from 100 with September 06. Anything less than 100 indicates a contraction.

Constraints reported 21% production, 14% staff, 7% Capital and markets 57%.

Staff numbers for October decreased to just over -2.6%.

“The survey is certainly a mixed bag of results. It indicates that there are encouraging signs as we approach Christmas and the New Year. Traditionally, the latter months of the year are busier for the manufacturing sector. Companies are reporting that sales and forward orders are on par with the same time last year and freight volumes have increased”, says Chief Executive John Walley.

“Confidence is down on last month, but up on a year ago, sales are up somewhat, margins are down and further falls are showing in the number employed – a mixed bag but generally better than it has been for most of the year.”

“However, seasonality can make it difficult to make a solid judgement as to manufacturers’ performance as it affects some firms more than others and those with a larger export component remain wary of the New Zealand dollar remaining strong against the US and Australian currencies”.

“The continued volatility in exchange rates means that it is difficult for firms to plan ahead, firms operating in the domestic market face price competition on imports and exporters see lower returns – the growing trade deficit indicates how much damage current policy settings are doing to the tradable sector.”

“Manufacturing in New Zealand exists between the rock of increasing fixed costs and the hard place of falling returns. Many must keep reminding themselves that “sales are vanity, profits are sanity” as sales grow but returns remain under pressure.”

“Companies are merging or relocating offshore to lower costs in an effort to improve returns. Strategic worries for those that remain are focused on domestic supply chains as they come under threat as the manufacturing support infrastructure is hollowed out.”

“Another constraint that manufacturers have reported is the availability of capable labour. People are less inclined to work extra during the warmer months and throughout the Christmas period and this having an impact on companies’ performance. Respondents also report that the Government’s ‘Working for Families’ package is proving a disincentive for even skilled people to work overtime, something which will need to be addressed at some point”.

“Overall, the survey has produced some positive results although serious concerns remain below the surface. Export sales have lifted, for some considerably, but margins remain under pressure.”

“The lead in to Christmas will add further buoyancy to the sector, but concerns indicate that it my not be a happy New Year”.


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