New Zealand's manufacturing sector contracted for the fourth consecutive month in August, with 'production' experiencing its lowest result, the BNZ-Business NZ Performance of Manufacturing Index (PMI) shows.

The seasonally adjusted PMI for August was 47.5, three points down from July. A PMI figure above 50 shows that the sector expanded. A figure below 50 indicates contraction.

"There's a clear warning in these figures that, while the economy may have bottomed, there's a lot of water to go under the bridge before the good times return," Bank of New Zealand's head of research Stephen Toplis said.

The four month contraction period equals the longest period of contraction for the manufacturing sector. The last time this was seen was late 2005/early 2006.

"While there are some encouraging aspects with the August result, namely comments around the drop in the New Zealand dollar over the last month, manufacturing production continue to struggle, while the sector has also seen a contraction in employment levels over the last seven months," Business NZ chief executive Phil O'Reilly said.

The 'production' index for August was 42.3, 'new orders' rose to 44.4 and 'employment' dropped to its lowest level of 45.4.

The recent Manpower Employment Outlook Survey said that employment prospects for New Zealand job seekers continue to weaken as the economy stalls.

"Believe it or not, we are optimistic that the combination of rapidly easing monetary conditions (largely currency led) and, soon, the provision of substantial fiscal stimuli will result in a much stronger economy but today's survey is yet more evidence that there's still some way to go before businesses, particularly in the manufacturing sector, will feel comfortable with their lot," Toplis said

'Deliveries of raw materials' was 50.2, its first expansion since April. The 'metal product' sector (52.2) experienced its first expansion in six months. 'Machinery and equipment' also expanded, at 51.6 for the month of August.

Regionally, the Northland region (48.6) experienced its eighth consecutive month in contraction. The PMI for Central region was 45.9, Canterbury/Westland was 43.9 and Otago/Southland was 48.9.

"Interestingly, the proportion of negative comments made by respondents continued to fall back, sitting at 68.3% in August, compared with 70.6% in July and 74.7% in June. Those with negative comments continued to outline the slowing economy and general economic downturn, while positive comments were more concentrated on the recent improvement of the New Zealand dollar," O'Reilly said.