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Manufacturing sentiment stabilises after 'big wobble'

Manufacturing sentiment stabilises after 'big wobble'

Nov. 15 (BusinessDesk) - Bank of New Zealand economists are drawing solace from a move back into positive territory for its closely watched Performance of Manufacturing Index, which was one of the few leading indicators to foreshadow the sharp rise in September quarter unemployment.

Published in conjunction with lobby group Business New Zealand, the PMI clocked in at 50.5 in October, an improvement of two points in September. A score above 50 indicates expansion, while a figure below 50 indicates contraction in activity.

The index fell sharply between May and August, in what can now be seen as an early warning of a sudden deterioriation in economic conditions following a relatively strong start to 2012.

BNZ economist Craig Ebert described the result as cause for "relief" rather than optimism, and "simply giving hope that the sector is stabilising, having been through a rough patch in the preceding few months."

However, while production at a reading of 53, finished stocks at 52.1 and new orders at 50.9 were all in positive territory, the PMI employment indicator was still mildly negative at 49.1, compared with a low point this year of 45.2 in August.

The fifth indicator in the series, deliveries, was also still negative, although it improved to 49.7 in the October survey.

While the employment index was "not exactly positive", Ebert said it supported the BNZ's view that the unemployment spike to 7.3 percent of the workforce seen in the September quarter was "more in the nature of a big wobble than the start of some rot."

At the same time, elements in the PMI were still "bouncing around like crazy."

"Until we see a more concerted and consistent pulse in the PMI we'll stay reticent about the manufacturing sector's growth prospects," said Ebert.

On a regional basis, the PMI shows the central region, covering the bottom half of the North Island and upper South Island showed the greatest resilience, with a reading of 57.6, followed by Otago/Southland at 54.0, the northern region at 52.1, and Canterbury/Westland weakest at 50.8.

Business NZ's executive director for manufacturing, Catherine Beard, said the PMI had emerged from a four month contraction, the longest consecutive monthly fall since 2009.

While a sharp jump in the number of positive anecdotal comments from manufacturers was welcome, "new orders remain historically low, while those employed in manufacturing have been in decline for five consecutive months," she said.

(BusinessDesk)

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