Manufacturers making hard work of it

Manufacturers need a sustainable business model in the current economy. Photo / Paul Estcourt

The manufacturing sector is firmly in the doldrums and recovery is a long way off, says Business NZ.

Results from the seasonally adjusted Bank of New Zealand-Business NZ Performance of Manufacturing Index for March show the sector has contracted for the 11th straight month, posting the third lowest result since the survey began seven years ago.

The seasonally adjusted index figure of 40.7 for last month - anything under 50 signals a contraction - was 1.8 points up on February, but still in negative territory for the 11th straight month.

Business NZ chief executive Phil O'Reilly said the first quarter of 2009 was considerably worse than previous years and months of contraction were expected.

Bank of New Zealand senior markets economist Craig Ebert said the reality of the situation was manufacturers were in a lot of distress at the moment.

"It's a dangerous time to be sticking your head in the sand on what's going on," said Ebert. "There's some hard choices manufacturers will need to make to get profits back on track."

Ebert said manufacturers would need to look at cutting staff numbers, hours and overtime, trimming wages, reducing investment, hurrying along overdue debtors and getting discounts from suppliers - none of which were good for the immediate-term economy.

"They're all avenues but they're nothing that's going to be a silver bullet," he said. "It really boils down to them getting profits back on track and particularly hoping for a rebound in global demand."

He warned against assuming sales would return to where they were a year ago.

"There's been a shift and people need to acknowledge the new reality, manage their way around it and the good guys will get through," Ebert said.

Those manufacturers that remained in the game as the world lifted out of recession were those with a sustainable business model, he said.

Seasonally adjusted results across the main indices were on a par with previous months. Production levels and new orders improved slightly. Finished stocks and raw materials showed little change, but employment continued to slide - now at an all-time low of 38.7.

The survey pointed to falling activity and sales, and collapsing profitability as the reasons behind the acceleration of job cuts in the manufacturing sector.

The results match those from the manufacturing section of last week's Quarterly Survey of Business Opinion.

Staffing indicators in the QSBO were its weakest on record with survey data going back to 1961.

"It's a chorus of concern," said the index's accompanying commentary. "It's not even telling us that manufacturing activity is about to stabilise, let alone start expanding again, as many are still hoping before too long."

Regionally, the unadjusted figures showed some improvement in parts of the country. Both the northern and central regions, which includes the top of the South Island, experienced a lift but were still in contraction at 41.3 and 45.2 respectively. Canterbury remained static at 41 and Otago slipped to 37.6.

Internationally, the JPMorgan Global PMI for March was at its highest point in five months at 37.2 on the back of a rise in manufacturing output and new orders.

Dismal figures
* The manufacturing sector is in its 11th straight month of contraction.
* Staffing levels continued to fall, reaching the lowest level since the survey began in 2002.
* Manufacturing across almost all sectors contracted, with the food, beverage and tobacco sector at a standstill.
* The proportion of negative comments eased to 70.3 per cent, compared with 75.1 per cent in February, 69.5 per cent in January and 69 per cent in December.