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NZ manufacturing activity recovers in August

New Zealand's manufacturing activity grew at a faster pace in August as increased demand from the construction industry underpinned a pick-up in production and new orders.

The BNZ-BusinessNZ performance of manufacturing index increased 0.8 of a point to a seasonally adjusted 52 last month, snapping three months of slowing growth although still below the long-run average of 53.4. A reading of 50 separates expanding activity from contraction.

The acceleration in activity was backed by an increase in production with a reading of 52.6 from a mildly contractionary level of 49.2 in July, and an improvement in new orders to 53.2 from 52.4. About 56.3 percent of comments from respondents to the survey were positive and included a noticeable increase in demand from the construction sector.

New Zealand's manufacturing sector is strongly linked to the construction sector, with more than half the country's industrial production output sold domestically and much of that to the building sector. The construction boom has been a key plank for the domestic economy in recent years but the Canterbury rebuild's peak, tighter credit criteria and skinny margins slowed activity.

BNZ senior economist Craig Ebert said increased production and new orders were encouraging but still below the long-run average.

"This was hardly different to the average of the previous two months, leaving the PMI running below normal in its growth signal," he said.

Today's data show the employment sub-index fell to a contractionary 48.1 from 51.2 in July, its lowest reading in two years, while finished stocks declined 2.1 points to 51.4. Deliveries edged up 0.1 of a point to 54.3.

Government data this week showed an unexpectedly large decline in manufacturing sales in the June quarter, although that was affected by outages at two energy producers in the period.

Ebert said those outages will recover in the September quarter and likely show up in gross domestic product data.

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