New Zealand's manufacturing activity at 14-month high as production steps up a gear

New Zealand's manufacturing activity slipped in January from December and there may be further headwinds to come.

New Zealand's manufacturing activity rose to its highest level in 14 months in March as a jump in new orders underpinned production, while a robust building sector continues to drive the country's economy.

The Bank of New Zealand-BusinessNZ performance of manufacturing index rose to a seasonally adjusted 57.8 in March from 55.7 in February, and was up from 53.4 a year earlier. That's the highest level of expansion since January 2016, and extended the sector's growing activity since October 2012. A reading above 50 indicates expansion and below points to a contraction.

The headline figure was supported by a 6.1 point jump in the new orders sub-index to 64.3, the highest reading since 2004, and accompanied by a 2.6 point increase in production to 60.4, a six-month high, which also helped lift the employment measure 2 points to 53.4.

Finished stocks dropped 3 points to 52.6 and deliveries slipped 0.4 of a point to 53.9.

"While the recent rebound has been in all the right places, it's new orders that have stood out head and shoulders," BNZ senior economist Craig Ebert said in his report. "This is a good sign that production, whose index strengthened to 60.4 in March, will sustain its strong momentum."

Manufacturing's fortunes are typically linked to construction with building booms providing demand for materials. New Zealand has one of its biggest building pipelines in history with a major push to bridge the supply gap in Auckland's housing picking up the slack after the Canterbury earthquake rebuild passed its peak.

Across the regions, Canterbury posted the highest reading at 65.1, followed by the Northern and Central regions at 50.5 and 59 respectively and Otago at a more modest expansionary reading of 51.8.

BNZ's Ebert said food, beverage and tobacco manufacturing activity had lagged behind some of the other industry measures, but he anticipated the sector stood "a very good chance of expanding very well over the first half of 2017" as dairy production returns to a more normal level after getting hit by a wet spring late last year.