Manufacturing shows glimmers of hope

Photo / Northern Advocate

The manufacturing sector is showing signs that it may get through the current economic crisis relatively unscathed.

Manufacturing had its second consecutive improvement in April, although the sector continues to remain in contraction, according to the BNZ Capital - Business NZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April stood at 43.7. This was up 1.8 points from March, but 7.0 points lower than April 2008. The April result was also the highest since September 2008.

A PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining. PMI values for April in the years 2003-2008 ranged from 50.7 and 58.7, with an average score for the previous April results of 53.3.

Business NZ chief executive Phil O'Reilly said that the sector had now been in continuous contraction for one year, although recent results had shown some cause for more positive views of the year ahead.

"Like last month, we still take the view that any significant change in the sector by way of showing expansion will still be someway off yet. However, there was a strong bounce bank in the JPMorgan Global PMI that posted its greatest month-on-month gain in the series history.

"Also, other economic indicators both here and abroad are typically showing either a halting of worsening conditions, or some positive outcomes. Further improvements in both new orders and production will help drive New Zealand's manufacturing sector back towards expansionary levels, with both these indices showing marked improvements from their low-points late last year."

BNZ Capital Senior Economist, Craig Ebert, said that April's results show encouraging trends.

"Every improvement has to start somewhere, even if in small steps. And in New Zealand's case the PMI "recovery" would seem to be in good company - with the large majority of global manufacturing indices also seeing a lift over the last couple of months. China has even returned to positive (above-50) territory recently."

However, Ebert also warned that "if all we're seeing in the recent PMI rebounds is simply a bit of catch-up of relief production, a bigger slump could yet transpire. Nothing can be ruled out at this early stage - negative or positive. The voracity, strength and sustainability of any recovery will ultimately depend on what's really going on under the surface, not on a line on a chart."