Manufacturing keeps getting better

JAMES WEIR
Last updated 05:00 24/01/2014

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Manufacturing kept up its head of steam at the end of 2013, and it may do even better in future and hire more staff, with an industry survey showing continued expansion.

For the first time since 2007, manufacturing expanded every month in the year in 2013, according to latest BNZ-BusinessNZ Performance of Manufacturing Index (PMI).

The index was 56.4 in December, similar to November's 57.0 and puts the quarter average at 56.5.

A figure above 50 shows the sector is expanding and below 50 that it is contracting.

BNZ economist Doug Steel said the firm PMI and robust details suggest that the strong rise in manufacturing GDP in the latest national accounts "was no fluke". More manufacturing GDP growth is expected over coming quarters."

Manufacturing GDP posted a hefty 1.5 per cent increase in the September quarter.

The latest PMI survey fits with estimates that manufacturing GDP posted another quarter of growth of more than 1 per cent in the December quarter, and looks on track for the same in the first quarter of 2014.

One of the positive signs in the latest PMI was the high level of new orders at 61.4. New orders have topped 60 points in five of the last six months.

At the same time finished stocks hit 48.6, moving into contraction for the first time since April.

Manufacturers had inventory "well under control" and might even be a little light on stock as demand strengthens, Steel said.

"The combination of strong new orders and falling inventory in the PMI is a positive indicator for more production ahead," he said.

Manufacturing growth may well "surprise on the high side" given that the gap between new orders and inventory indicators was now at its widest since 2004.

Manufacturers were gearing up to make more, including taking on more staff.

The PMI employment indicator hit 55.2 in December, the strongest job pulse seen since 2007, before the global financial crisis hit.

That was a good sign for more jobs nationally and a lower unemployment rate "in due course".

BNZ expected unemployment to dip under 6 per cent in the next reading out in February, and head down to 5 per cent in the next couple of years.

There were also strong signs of manufacturers planning to invest more in new plant and machinery.

It was all part of an improving big economic picture as things like construction activity picked up, higher revenues flowed into the agricultural sector and net migration turned strongly positive "adding more juice to domestic demand" he said.

However, the picture for manufacturing is not strong everywhere.

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The Northern region was top of the pops with 60.1 points in December, with its third reading above 60 for the first time in almost a decade.

But both the central region at 48.8, and Canterbury/Westland 49.9 fell back on strong results seen in November. Otago/ Southland remained upbeat at 58.3.

Overall, BusinessNZ's executive director for manufacturing Catherine Beard said that New Zealand's manufacturing scene was a standout performer, compared with other countries during 2013.

"With every month being in positive territory, the sector did not experience any lulls in activity that has hampered previous years," she said.

- Wellington

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