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Situation tenuous as confidence drops

1 July 2008

Situation tenuous as confidence drops

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during June 2008, shows total sales in May 2008 decreased 3.71% (export sales increased by 8.13% with domestic sales decreasing 15.3%) on May 2007.

The NZMEA survey sample this month covered NZ$469m in annualised sales, with an export content of 56%.

Net confidence dropped to -40, down from the -33 result reported last month.

The current performance index (a combination of profitability and cash flow) is at 100, up from the previous month’s 98, the change index (capacity utilisation, staff levels, orders and inventories) stayed at 100, and the forecast index (investment, sales, profitability and staff) is at 101, up on the previous month’s result of 99.8. Anything less than 100 indicates a contraction.

The reported constraints were: 10% capacity, 20% staff and markets 70%.

Staff numbers for May increased year on year by 7.46%.

“Comments from manufacturers and exporters indicate worries about the future. Sales are holding up now but there are few forward orders and confidence figures are reflecting that uncertain future. The rising cost of raw materials, energy and transport fuel are eating into profit margins for manufacturers as they are for the rest of the economy,” says Chief Executive John Walley.

“Concerns about the viability of thinning supply chains affecting the cost and supply of goods required are continuing as suppliers lose ‘critical mass’ and yet more activity moves offshore. The relocation of some large manufacturers offshore has made supply more difficult, reducing the international competitiveness of New Zealand’s manufacturers.”

“Skilled staff shortages in the workforce, particularly engineers and accountants, were identified as concerns. The ‘brain drain’ to Australia was in the headlines when the survey was open, contributing to this sentiment. This must be a major concern for our future.”

“Better returns on sales to Australia due to the improving exchange rate are positive, underpinning the increased export sales, but margins remain under pressure. The reduction of sales in the domestic sector reflects problems faced in the rest of the economy. Recent figures show a reduction in business borrowing, indicating that pressures previously seen in the tradeable sector have spread to the domestic sector.”

“There is a hope that the long period of pain due to high exchange rates will come to an end, but that hope is edged with sadness that the suffering will now be passed on to the domestic sector.”

“Although the situation is improving for exporters, uncertainty means that many are reluctant to invest in capacity expansion. A key question is - will it now be just once more around the trade cycle or will there be a serious attempt to focus policy on supporting the tradeable sector?”


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