Manufacturing activity in New Zealand showed further signs of strengthening in July, the BNZ-Business NZ Performance of Manufacturing Index (PMI) showed. Production levels grew for the first month after 14 months in contraction, while the number of new orders rose for the second consecutive month having contracted since May 2008.

However, the overall index showed the manufacturing sector was still not quite in growth mode yet, with an index score of 49.7 indicating that contraction in the sector had practically stopped. An index score below 50 signals contraction in the sector, while a score above 50 signals expansion.

BNZ economist Stephen Toplis said the results mirrored what had been seen for manufacturers globally. The JP Morgan Global Manufacturing PMI finally clawed its way back to the 'neutral' 50-level, its highest reading in 14 months, Toplis said.

"Consensus forecasts for economic activity are pushing higher, financial market asset prices are reflecting the belief that the impending recovery is sustainable, and even the global PMI indices are now going from strength to strength," Toplis said.

"This is not to suggest there is a widespread belief that the world will suddenly become a wonderful place but it is growing confirmation that the worst is probably behind us," he said.

The seasonally adjusted production index rose to 51 from 48.1 in June (unadjusted was 50.3 from 46.1), while new orders rose from 51.9 to 55.1 (54.8 from 48.3 unadjusted). The employment component of the index showed less contraction in July than June, but was still in line with expectations that the unemployment rate will rise further during the year and into 2010.

Regionally, the Central and Canterbury regions showed growth in July. The northern region slowed its pace of contraction, while the Otago region contracted further from June.