Manufacturing Expansion Eases Slightly For Sept.

Media release
15 October 2004

Manufacturing expansion eases slightly for September

New Zealand manufacturing recorded expansion in September, though slightly less than in August, according to the latest ANZ-Business NZ Performance of Manufacturing Index (PMI).

The September PMI was 56.8, down from 58.8 in August and below September 2002 and 2003 (a PMI reading above 50 points indicates expansion and below 50 indicates decline).

The production sub-index (59.1) led the way for the first time since October 2003, followed by new orders (58.6). Deliveries and finished stocks recorded similar expansion, while employment had increased expansion after two consecutive monthly falls.

All four regions recorded expansion for September, led by Northern and Otago/Southland, although most at a lower level than in August.

While manufacturing conditions are still showing expansion, labour shortages and the high value of the New Zealand dollar are having a dampening effect. Some firms have reached production capacity while others note a fall off in orders, both domestically and overseas.

The exchange rate caused comment in a number of sectors, notably metal products and textile, clothing, footwear & leather. Higher import prices were increasing raw material costs for the machinery & equipment sector, and this, along with a general seasonal decline, was causing activity to fall. In contrast to other sectors petroleum, coal, chemical & associated products was still enjoying strong demand from overseas.

Full results are available on http://www.anz.co.nz under 'ANZ Spotlight/Economics' and on http://www.businessnz.org.nz under 'PMI Reports'. The ANZ-Business NZ PMI (performance of manufacturing index) is sponsored by business banking specialist ANZ National Bank Ltd and draws on the depth of member companies associated with Business NZ: EMA (Northern), EMA (Central), Canterbury Employers' Chamber of Commerce and Otago Southland Employers' Association.

SUMMARY

MANUFACTURING ACTIVITY EASES SLIGHTLY

FOR THE MONTH OF SEPTEMBER 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 manufacturingis generally expanding; below 50 indicates it is contracting; the distance from 50 indicates thestrength of expansion or contraction.

KEY FINDINGS

- The ANZ-Business NZ Performance of Manufacturing Index stood at 56.8 for the month ofSeptember. This was 2.0 points lower than in August, but continued to indicate healthyexpansion in the manufacturing sector. The September 2004 PMI value was lower than that of September 2002 (60.5) and 2003 (59.6).

- Production (59.1) was the strongest sub-index value in September, as new ordersdropped to second (58.6) after 10 months at the top. Deliveries (55.1) fell5.6 points from August, while finished stocks values (56.1) were similar to those in August. Employment for September (53.0) was the only sub-index to record higher expansion from August.

- Activity by sector was expansionary for most industries during September, with thepetroleum, coal, chemical & associated product sector (67.2) recording the highest level of expansion. The metal product sector (57.1) recorded more moderate expansion, while thetextile, clothing, footwear & leather sector (49.2) stayed relativel

y flat.

- All four regions recorded expansion during September. The Otago/Southland region (62.3)had the highest level of expansion for September, up 4.8 points from August. The Northernregion (58.5) recorded the first sub-60 value in four months, although still showing strongexpansion. Both the Central and Canterbury/Westland regions recorded similar values (54.3and 54.9 respectively).

- All firms by size continued to record expansion for September. After recent strong expansion,micro sized firms (1-10 workers) recorded more moderate expansion for September (52.8). Both small-medium sized firms (11-50 workers, 57.1) and medium-large firms (51-100 workers, 61.3) recorded very similar values to August, while large firms (100+ workers, 55.7)experienced the only lift in expansion from the previous month.

- While manufacturing conditions continue to show expansion, ongoing issues of labourshortages and the high value of the New Zealand dollar continue to hamper increasedproduction. Some firms have reached production capacity, while others note a fall off in orders, both domestically and overseas.

- Comments on to the exchange rate came through strongly in some sectors, such as metal products and textile, clothing, footwear & leather. Higher import prices were increasing raw material costs for the machinery & equipmentsector and this, with a general seasonal decline was causing the level of expansion to fall. In contrast with other sectors, petroleum, coal, chemical & associated products continued to experience strong demand from overseas.

PRODUCTION
- The ANZ-Business NZ production diffusion index stood at 59.1 for September, the highest diffusion index value for the month. This was down 0.7 points from August, and lower than the 63.0 and 63.8 recorded in September 2003 and 2002 respectively.
- The petroleum, coal, chemical & associated product sector (73.9) recorded a very strong level of expansion in production during September, along with the metal product sector (62.8).
- The Northern region (57.4) recorded a fall from its strong expansion level in August, though still showing healthy expansion in September. Both the Central and Otago/Southland regions experienced an increase in production activity for September (56.0 and 80.0 respectively), while the Canterbury/Westland region recorded the same level of activity as in August (61.5).

EMPLOYMENT
- The ANZ-Business NZ employment diffusion index (53.0) for September lifted its expansion from August to record one of the highest values during 2004. However the September 2004 result was lower than that in September 2002 and 2003.
- The petroleum, coal, chemical and associated product sector recorded healthy expansion in September (59.8); most other sectors experienced moderate employment expansion activity. - Three of the four regions experienced a lift in employment activity for September, led by the Central region (54.7). Both the Northern and Canterbury/Westland regions recorded similar expansion levels (53.2 and 53.8 respectively), while the Otago/Southland region experienced a decline (40.0).

NEW ORDERS
- For the first time in 11 months the ANZ-Business NZ new orders diffusion index (58.6) did not have the highest value of the five diffusion indexes for September. The September 2004 result was also lower than that recorded in both September 2003 and 2002 (61.8 and 64.1 respectively).
- New orders were again particularly strong for some manufacturing sectors and moderate for others. The petroleum, coal, chemical & associated product (70.7) and food, beverage & tobacco (61.4) sectors both recorded very high levels of expansion, in contrast to the wood & paper product sector’s only slight expansion (52.5). - Both ends of the country had strong expansion in new orders; the Northern and Otago/Southland regions recorded 63.9 and 70.0 respectively. The Central and Canterbury/Westland regions experienced only slight expansion (52.7 and 51.3 respectively).

FINISHED STOCKS
- The ANZ-Business NZ finished stocks (56.1) diffusion index for September was very similar to the August value and to values recorded in September 2003 and 2002.
- Both the petroleum, coal, chemical & associated product (60.9) and the wood & paper product (60.0) sectors recorded a high level of expansion for September. In contrast, the machinery & equipment sector (46.4) experienced a decline.
- All regions recorded moderate to strong expansion in finished stocks, with the Canterbury/Westland region (59.0) recording the highest value.

DELIVERIES
- The ANZ-Business NZ deliveries of raw materials diffusion index stood at 55.1 for September 2004. This was lower than both September 2003 and 2002. - Sector results were mostly positive, with the strongest expansion in the petroleum, coal, chemical & associated product sector (63.0). - Deliveries of raw materials were expansionary for three of the four regions, with the Canterbury/Westland region (50.0) recording no change.

National Indexes Sep 2002 Sep 2003 Aug 2004 Sep 2004
ANZ-Business NZ PMI 60.5 59.6 58.8 56.8
- Production 63.8 63.0 59.8 59.1
- Employment 52.7 53.5 50.2 53.0
- New orders 64.1 61.8 63.6 58.6
- Finished stocks 56.0 57.5 56.3 56.1
- Deliveries 60.9 58.7 60.7 55.1

Regional Indexes* Sep 2002 Sep 2003 Aug 2004 Sep 2004
ANZ-Business NZ PMI 60.5 59.6 58.8 56.8
- Northern 58.1 62.1 61.1 58.5
- Central 60.3 57.0 55.9 54.3
- Canterbury / Westland 63.6 65.2 59.6 54.9
- Otago/Southland 67.0 52.1 57.5 62.3

*Regions (grouped according to Business NZ’s associated regional organisations) Northern (EMA Northern): Northland, Auckland, Waikato, Bay of Plenty Central (EMA Central): Gisborne, Hawke’s Bay, Taranaki, Manawatu, Wanganui, Wellington, Nelson, Tasman Canterbury/Westland (CECC): Canterbury, Marlborough, West Coast Otago/Southland (OSEA): Otago, Southland Next ANZ-Business NZ PMI (October results): 12 November 2004

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