Boost in manufacturing index healthy indicator

By BRIAN FALLOW

The manufacturing sector is in good heart, according to the ANZ-Business New Zealand performance of manufacturing index.

The index rose to 60.5 in September from 58.2 in August.

An index reading above 50 indicates that manufacturing is expanding; a reading below 50, as in the United States, indicates contraction.

Four of the five component indicators also improved: Production, new orders, stocks and deliveries of raw materials all rose.

But the employment index fell.

"There is continuing frustration, and not just in the manufacturing sector, that people are struggling to do what they would like to because of the difficulty of finding skilled labour," said the ANZ chief economist, David Drage.

Indicators such as the hiring intentions question in the Institute of Economic Research's quarterly survey of business opinion, and ANZ job advertisements series, indicated a willingness to hire.

But it was clear from the performance of manufacturing index that those intentions were being frustrated, Drage said.

Overall, the index was another sign of momentum within the New Zealand economy and in Australia, the main export destination for manufactured goods, he said.

But domestic demand was mixed, Drage said.

Some firms were reporting that weaker dairy prices were beginning to be reflected in reduced spending.

"However, construction activity and solid retail sales growth, driven largely by household income growth associated with employment gains, relatively low interest rates and high immigration, continue to underpin domestic demand."

Some firms were concerned about a higher New Zealand dollar eroding their competitiveness.

Others welcomed the higher dollar value because it cut the cost of imported inputs.