New Zealand’s manufacturing activity was still expanding in September although a dip in production and new orders may signal tougher times ahead.
The BNZ-BusinessNZ performance of manufacturing index fell 0.3 of a point to a seasonally adjusted 51.7 last month, below the long-term average of 53.4. A reading of 50 separates expanding activity from contraction.
“New Zealand’s manufacturing sector remains stuck in low gear,” BNZ senior economist Craig Ebert said.
Production slipped back to a mildly contractionary level with a reading of 49.6 from 52.5 in August and the measure for new orders dipped to dipped to 52.4 from 53.1. Employment lifted to 50.5 from 49, finished stocks rose to 52.7 from 51.4 while deliveries eased to 52.5 from 54.1
“While it was good to see employment returning to some level of expansion, in contrast production returned to contraction. Also, new orders displayed weaker expansion for September, which may affect production figures in the months ahead,” said BusinessNZ’s executive director for manufacturing Catherine Beard.
Ebert also said the production reading “was forming a picture of stalling growth.” The data will add to the view that economic growth is slowing and that the central bank will continue to keep the official cash rate on hold at 1.75 percent and reiterate its scope to cut rates if the economy fails to fire.
The survey backs up the latest quarterly business confidence survey from the New Zealand Institute of Economic Research. Manufacturers were the most pessimistic sector, with a net 40 percent anticipating a deterioration in the economy, which NZIER said coincided with weaker demand and rising costs.
Ebert noted, however, that the sector is “extremely stretched for resources,” with capacity utilisation near a record high and manufacturers facing stronger cost inflation.
“We should be careful about reading the sector as weak and cautious about how much expansion we can reasonably expect of it at this point,” he said.