Christchurch rebuild adds impetus for manufacturers

16:00, Jan 24 2013

Manufacturers appear modestly optimistic that activity will pick up in 2013 after a patchy year but remain extremely cautious about the timing, according to the latest BusinessNZ Performance of Manufacturing Index data.

The figures for December, which were released yesterday, show the sector edged into expansion with a reading of 50.1, up from 48.8 in the previous month on what appeared to be expectations the economy will turn a corner in the year ahead.

The main driver is the Canterbury earthquake rebuild, with demand from the construction sectors expected to flow through into demand for manufactured goods. Still, after several false starts last year, those bets are laced with high levels of caution.

John McDonald, production manager at Ullrich Aluminium in Petone, noted there had been an upturn in tender activity in the manufacturing sector, but that has yet to flow through into new work.

That's reflected in the PMI data.

Of the five subcategories, only production showed any momentum in the month, with a reading of 52.5.


New orders, finished stock, employment and deliveries either dipped or held below the key 50-point threshold.

A reading below this level indicates a contraction in activity, and a figure above 50 implies expansion.

"Long-term it looks to be very confident, but right now, until you get the work or papers signed, it is very slow going," McDonald said.

Indeed, compared with the same month in previous years, the current December PMI reading is the lowest since 2008, near the depth of the Global Financial Crisis. Doug Steel, an economist at BNZ, said the slowdown in the Australian economy - and its potential impact on the domestic manufacturing sector - was adding to the cautious tone of the data.

Australia is New Zealand's biggest trading partner and the relatively stable exchange rate between the two currencies had helped bolster demand for Kiwi goods across the Tasman.

However, the steady slowdown in Australian retail spending and rising unemployment could weigh on New Zealand exports, which are already under pressure globally from the high New Zealand dollar.

"The Australian economy has been soggy recently, and business confidence levels have started to track down," Steel said.

He noted, though, that the outlook for the medium term is mostly upbeat, with 56.6 per cent of the manufacturers polled in the December PMI report giving positive comments.

Although that was slightly down from November's 57.6 per cent reading, it matches the most recent Quarterly Survey of Business Opinion which showed manufacturers are optimistic about their prospects in 2013.

Steel said that if the global economic picture remained stable and domestic construction activity picked up in line with the way economists are betting, there is scope for improvement in the manufacturing sector ahead.