Manufacturing speeds up in September

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A barometer of manufacturing activity continues to point to fair weather for the sector.

The BNZ-Business New Zealand performance of manufacturing index (PMI) rose for the fourth successive month in September, to a level which has only been exceeded three times in the past 10 years.

At 58.1 the PMI is up from 57 in August and from a recent low of 52.7 in May. Any level over 50 indicates expansion.

"This pick-up has been relatively well spread across industry type, firm size and the standard breakdowns of production, orders, employment, stocks and deliveries," BNZ economist Craig Ebert said.

The employment sub-index is at its highest level for seven years.

"While dairy export prices and the outlook for dairy farmer income are becoming problematic, New Zealand's construction industry is looking stronger by the day. The growth impulse from Canterbury's reconstruction might be peaking soon, but only a fraction of the estimated $45 billion of work has been completed so far. Meanwhile, Auckland's building and infrastructure work programme is looking bigger and bigger."

The New Zealand dollar has fallen from a peak of around US88c in July, and the BNZ is forecasting US78c by the end of the year and US73c by the end of next year.

While the falls against the Australian dollar, euro, yen and pound had been smaller, the increasingly important exchange rate with Chinese yuan had dropped at least as much as the kiwi/US rate over recent months, Ebert said.

But while the falling currency would help revenue of manufactured goods exporters it also put upward pressure on import costs and made foreign-exchange debt harder to service.