NZ manufacturing contracts, new orders pick up

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New Zealand manufacturing contracted for a second month, led by wood and paper products, though new orders recovered and employment stayed positive, which may signal an end to the gloom.

The BNZ-Business NZ Performance of Manufacturing Index fell to
49.2 in September, a 13-month low, from 49.3 in August. New orders rose to 50.3 after sinking to 47.7 in August, which was the lowest since May 2009.

On the PMI scale, 50 marks the dividing line between contraction and expansion.

Employment has remained positive for four straight months, based on the PMI, and Bank of New Zealand economist Stephen Toplis said the labour market has the potential to provide "a positive surprise" in coming months, which in turn could fan wages and inflation.

Economists have pushed back their expectations for central bank interest rate hikes into next year, given the patchy recovery.

"The Reserve Bank needs to be a little careful about running policy on the slack side for too long," Toplis said.

There is a likelihood that the real economy "performs much better than the immediately damp indicators would suggest."

Figures from the Real Estate Institute today show residential house sales remained in the doldrums last month, edging up to 4323 from 4287 in August, to be about one third lower than for September last year.

Households are using any spare cash to repay debt and feel less wealthy with the downturn in the property market.

The PMI showed production fell back into contraction in September at 47.8, finished stocks deteriorated to 47.9 from 50.1 and deliveries fell to 47.1 from 48.8.

Employment improved to 51.7 from 51.3.

Unadjusted results by region showed little change in activity levels for most regions. The Northern region improved to 53.7 from 53.4 and the central region, which includes central and lower North Island, rose to 47.7 from 46.9.

Canterbury and Westland region was at 52.8, showing little sign of disruption from the earthquake. Otago and Southland improved to 47.4 from 44.7.

Manufacturing by industry sub groups showed metal product manufacturing worsened to 47 from 47.3 and wood and paper product making slipped to 45.4.

Food, beverage and tobacco showed the strongest growth at 62.8 from 60.5.