Lift in orders best in years

Manufacturing activity expanded across the board. Photo / Alan Gibson

A barometer of manufacturing is pointing to fairer weather ahead for the sector.

The BNZ-Business New Zealand Performance of Manufacturing Index (PMI) leapt 6.9 points to 57.7 last month, the highest since April 2010.

Any reading above 50 indicates the sector is expanding. It averaged 49.7 over the previous six months.

BNZ economist Doug Steel called the result "stunning" and noted that it had been bettered only twice in the past seven years.

"We were on the lookout for signs the optimism brewing in the construction sector, or the [export] commodity cash, was starting to filter through to domestic manufacturing," Steel said.

"Our cautious optimism was well and truly exceeded."

Business NZ's executive director for manufacturing, Catherine Beard, was more guarded, however.

The strong upturn was welcome, she said, but whether it indicated a true turnaround in the fortunes of manufacturing remained to be seen.

"The fact that the key sub-indices of production and new orders experienced large lifts [9.8 and 12.5 points respectively] is a good indicator," she said.

"However with the global market still flat at best, we would be cautious at this stage about thinking the sector has turned any corner in terms of sustained growth."

Steel said the surge in new orders was the biggest in the 10-year history of the PMI and took the new orders indicator to its highest level since 2004.

Finished stocks were unchanged.

Goldman Sachs economist Philip Borkin said that meant an index of new orders less inventories had surged to its widest level since June 2004 and second widest level since 2002.

"This bodes well for further production growth over the coming months."

All nine industries the sector is divided into were above 50 on a seasonally adjusted basis, indicating expansion, for only the second time since 2007.

There were signs the parts of the sector sensitive to construction - such as metal manufacturing, non-metallic minerals and wood processing - were starting to lift, Steel said.

"Existing house sales tend to move first, followed by building consents and eventually more construction activity and more demand for manufacturing goods."

Housing market turnover was already well and truly off the bottom of a few years ago, Steel said, and given the usual lag he expected residential building consents to add to the 27 per cent annual increase already recorded in the year to January.

And with food processing accounting for more than a third of the manufacturing sector, the impact of very good growing conditions this season should not be underestimated.

Numbers up

Performance of Manufacturing Index:

* 57.7 in February

* 50.8 in January

* 49.7 average over previous six months