Manufacturing at 10-year low

Manufacturing sales volumes fell to the lowest point in 10 years during the March quarter, driven by a 10 per cent drop in meat and dairy sales.

According to the Statistics New Zealand Economic Survey of Manufacturing, total sales volume dropped 2.7 per cent in the March quarter, reversing the 2.7 per cent rise achieved in the prior period.

ANZ chief economist Cameron Bagrie said the impact of drought conditions over the summer could be driving the drop in meat and dairy sales.

"It's still a little bit surprising - the extent of that - given it was the March quarter," Bagrie said.

Despite the drop in sales volume, the surge in dairy prices pushed the value of dairy sales up 0.9 per cent, according to the survey.

Bagrie said the March quarter data showed the early impact of the drought, which would have restricted supply, pushing dairy prices up.

If dairy and meat volumes were taken out of consideration, the survey results were not too bad, he said.

"Core manufacturing sales were okay, though not as strong as what we perhaps would have liked," Bagrie said. "It suggests to us that you're going to see a big storming Q1 GDP."

Excluding the meat and dairy industries, other manufacturing industries - led by basic metal manufacturing - rose by 1.3 per cent.

Bagrie warned that inventory restocking could be behind the rise in those industries - which included machinery, plastic and transport equipment manufacturing - rather than customer purchases.

"To move towards the next leg of the recovery process you've got to see stuff start to sell. And what we're seeing globally ... is that private demand is still pretty sluggish," he said.

ASB chief economist Nick Tuffley said New Zealand manufacturing was seeing a recovery in domestic and export demand - particularly in Australia. "A likely driver in the increase in non-food manufacturing is the improvement in domestic [sales] conditions and some better exporting conditions into Australia," Tuffley said.

Statistics New Zealand said the trend for sales volume was flatter than previously indicated, and now showed little change for the last four quarters.

Bagrie said the current uncertainty in global markets was a reminder that it took more than 18 months to recover from a global financial crisis.

He said: "These things just always tend to take a bit of time in terms of how they pan out."