Activity in New Zealand's manufacturing sector expanded for the fifth month in a row in January and is sitting "modestly in expansion mode," BNZ economist Doug Steel said. However, the recovery has come off a low base after seven quarters of decline, and growth is still not strong enough for net job creation in the sector, Steel said.

The BNZ-Business NZ Performance of Manufacturing Index (PMI) recorded a seasonally adjusted expansionary score of 52 in January, down slightly from 53 in December. A score above 50 indicates an expansion of activity in the sector, while a score below 50 indicates contraction.

January's PMI indicated "classic signs of a sector in the early stages of recovery," Steel said, and was consistent with BNZ's view that manufacturing GDP posted positive growth in the fourth quarter of 2009.

Forward indicators suggest the employment situation in the sector would turn around mid-year, Steel said.

"For now, in the manufacturing sector, rising productivity "“ the result of production picking up and employment lagging "“ is turning profitability around. In fact, according to the January Quarterly Survey of Business Opinion, profitability in the manufacturing sector has just ticked positive for the first time in six years. Long may it last," he said.

Here is the release from Business NZ:

New orders keep manufacturing activity on right track

Ongoing strength in new orders kept manufacturing in positive territory for the first month of 2010, according to the BNZ - Business NZ Performance of Manufacturing Index (PMI).

Related Topics

News

BNZ

Business NZ

Doug Steel

Economy

Performance of Manufacturing Index

PMI

The seasonally adjusted PMI for January was 52. Although this was down one point from December, the last 5 months have seen general expansion.

A PMI reading above 50 indicates that manufacturing is generally expanding; below 50 that it is declining. PMI values for January in the years 2002-2009 ranged between 42 and 56, with an average score for the previous January results of 52.6.

Business NZ Executive Director for Manufacturing Catherine Beard said New Zealand manufacturers were in a better position than a year ago, when the PMI was entrenched in negative territory.

"After five months of solid - if unspectacular - expansion we have now reached a phase where monthly results are consistent and new orders continue to drive activity. Comments from manufacturers surveyed for the PMI highlight increased offshore orders as a key catalyst for improved activity, Ms Beard said.

"However, employment within the manufacturing sector remains stubbornly stuck in contraction. Employment is usually the last indicator to turn around once new orders and production begin to pick up."

BNZ Economist Doug Steel said the combination of strong new orders and lower inventories was a positive sign.

"This is consistent with our expectation of a wider economic recovery developing through 2010," Mr Steel said.

"Ongoing economic growth in Australia and a favourable cross exchange rate are positives, while there are uncertainties and risks elsewhere in the world, including Europe."

Three of the five PMI indexes were in contraction during January however the two key indexes production (52.3) and new orders (56.2) remained in expansionary mode.

Employment (49.6) and deliveries of raw materials (49.3) remained just under the level of no change. Stocks of finished products (46.9) remained the lowest indicator, with 13 consecutive months in contraction.

While the overall seasonally adjusted result was in expansion, the unadjusted results showed all regions in decline during January. The biggest drop was in the Northern region (45.8), which had shown the strongest level of regional expansion for the previous two months. The Canterbury/Westland region (49.7) experienced a slight decline, while the Central (48.9) and Otago/Southland (48.8) regions displayed almost identical levels of activity.