Some growth in Manufacturing, but uncertain times

Media release, 15 September, 2005

Some growth in Manufacturing, but uncertain times ahead

Manufacturing activity showed expansion for August, after a period of small declines according to the ANZ-Business Performance of Manufacturing Index (PMI).

The PMI for August showed a value of 53.1, up from 48.2 in July and the strongest level of activity since February. Scores above 50 indicate that activity is expanding; below 50 indicate a decline.

The Deliveries (55.4) sub-index recorded the strongest level of expansion during August for the first time since December 2003, while the remaining sub-indexes displayed relatively similar levels of expansion, with Employment (50.5) recording the lowest value.

Comments from manufacturers during August were similar to previous months, with the persistent high New Zealand dollar and skills shortages affecting activity. There was still the view that the economy was definitely slowing, causing a drop in orders. The coming months tend to show a pick up in activity as the build up for the Christmas period takes place, so future results will provide an indication of how strongly the slowdown continues to affect manufacturers.

Bruce Goldsworthy said, while the results for August are good and reflect some build-up in demand, it is too early to say whether this will be sustained.

Generally manufacturers are facing some uncertainty ahead, while most are projecting production levels to hold up, there is increasing pressure on margins in both the domestic and export markets.

Economic forecasts and current indicators have minimal growth in the New Zealand economy over the next 12 months, so any expansion in sales for our manufacturing exporters will have to come from a pick up in global demand, among their international markets. The big constraint continues to be the New Zealand dollar.

ENDS

MANUFACTURING ACTIVITY PICKS UP

ANZ-BUSINESS NZ PMI FOR AUGUST 2005

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 the strength of expansion or contraction.

KEY FINDINGS

- The ANZ-Business NZ Performance of Manufacturing Index was 53.1 for August; indicating expansion after a lackluster period of small declines. The August 2005 result was towards the bottom end of the four values recorded for August, with the highest value being 58.8 in 2004.

- There were considerable differences between the regions in terms of the level of activity. The Otago/Southland region (60.9) recorded the highest level of expansion since November 2004. The Northern region (54.0) recovered from a strong decline in July, while the Central region (51.3) showed slight expansion. The Canterbury/Westland region (47.6) was the only region to record a fall in activity, which was its strongest level of decline since the survey began.

- Deliveries of raw materials (55.4) experienced the highest sub-index value for the first time since December 2003. All other sub-indexes displayed relatively similar levels of expansion, with employment (50.5) experiencing the lowest value.

- Overall, most industry groups showed expansion in August, particularly the petroleum, coal, chemical & associated product sector (56.7). The metal product sector (50.4) recorded the lowest value for August, albeit showing slight expansion.

- The only firm by size to experience a decline in August was large firms (101+ workers) (48.0), which was the complete opposite from July when it was the only group to show expansion. The remaining groups varied in terms of their level of expansion, led by micro firms (1-10 workers) (61.1) recording the highest level of activity for the month.

- Comments from manufacturers during August were similar to previous months, with the persistent high New Zealand dollar and skills shortages affecting activity. There was still the view that the economy was definitely slowing, causing a drop in orders. The coming months tend to show a pick up in activity as the build up for the Christmas period takes place, so future results will provide an indication of how strongly the slowdown continues to affect manufacturers.
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PRODUCTION

- The ANZ-Business NZ production diffusion index stood at 53.8 – an improvement on July when it was the lowest sub-index value recorded. The result was below the values recorded in 2002 and 2004, but stronger than the decline experienced in 2003.

- The petroleum, coal, chemical & associated product (61.2) and food, beverage & tobacco (55.4) sectors showed strong levels of expansion, while the metal product sector (45.5) was in decline.

- The Otago/Southland region (62.5) displayed a strong level of expansion for August. The remaining regions experienced values ranging from 51.5 to 53.7.

EMPLOYMENT

- The ANZ-Business NZ employment diffusion index (50.5) continues to change from month to month in terms of slight expansion and decline, with the August result showing small expansion. The August value for 2005 was generally consistent with previous August values.

- Industries tended to be mixed whether they showed expansion or decline in August, with the metal product sector (54.5) showing moderate expansion, while the petroleum, coal, chemical & associated product sector (48.0) showing a decline.

- All regions except the Canterbury/Westland region (45.6) recorded expansion in employment activity for August. The highest value was recorded by the Otago/Southland region (56.3), followed by the Central region (50.9).

NEW ORDERS

- The ANZ-Business NZ new orders diffusion index for August (53.4) recorded its strongest level of expansion since February, after 5 months of values indicating close to no change. The 2005 value for new orders was the lowest recorded for August since the survey began.

- The petroleum, coal, chemical & associated product sector (59.2) showed healthy expansion, while the metal product sector (48.9) showed a slight decline.

- Both North Island regions showed expansion in August, while the South Island was split with the Otago/Southland region (64.6) recording the highest value throughout the country and the Canterbury/Westland region (44.1) showing the lowest.

FINISHED STOCKS

- The ANZ-Business NZ finished stocks (52.3) sub-index improved on its value recorded in July to show a stronger level of expansion for August.

- The metal product sector (58.0) recorded strong expansion during August, while the food, beverage & tobacco sector (48.2) slipped further down from July to record a decline.

- All regions with the exception of the Central region (48.2) recorded expansion in August, led by the Otago/Southland region (56.3).

DELIVERIES

- The ANZ-Business NZ deliveries of raw materials diffusion index stood at 55.4 in August, to record the highest sub-index value for the month.

- While the petroleum, coal, chemical & associated product sector (61.2) again showed strong expansion, most other industries displayed only minimal levels of expansion.

- All regions except the Canterbury/Westland region (48.5) recorded an expansion in deliveries. The highest level of expansion was recorded in the Otago/Southland region (60.4).

National Indexes Aug 2002 Aug 2003 Aug 2004 Aug 2005 Aug 2005
ANZ-Business NZ PMI 58.2 51.9 58.8 53.1
- Production 59.6 48.9 59.8 53.8
- Employment 53.7 50.8 50.2 50.5
- New orders 61.2 56.1 63.6 53.4
- Finished stocks 53.3 51.6 56.3 52.3
- Deliveries 59.1 50.3 60.7 55.4

Regional Indexes* Aug 2002 Aug 2003 Aug 2004
ANZ-Business NZ PMI 58.2 51.9 58.8 53.1
- Northern 57.7 52.2 61.1 54.0
- Central 56.6 48.6 55.9 51.3
- Canterbury / Westland 62.0 60.2 59.6 47.6
- Otago/Southland 58.9 53.4 57.5 60.9

*Regions (grouped according to Business NZ’s associated regional organisations)

Northern (Employers and Manufacturers Association (Northern)): Northland, Auckland, Waikato, Bay of Plenty

Central (Employers and Manufacturers Association (Central)): Gisborne, Hawke’s Bay, Taranaki, Manawatu, Wanganui, Wellington, Nelson, Tasman

Canterbury/Westland (Canterbury Employers Chamber of Commerce): Canterbury, Marlborough, West Coast

Otago/Southland (Otago Southland Employers Association): Otago, Southland

Next ANZ-Business NZ PMI (September results): 14 October 2005

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