Dairy, meat buoy manufacturing

Manufacturers' sales volumes were up marginally in the March quarter but only because dairy factories and meatworks were busier.

Statistics New Zealand's quarterly survey of manufacturing recorded a 0.2 per cent rise in sales volumes - the first increase since September 2007 - buoyed by a 23 per cent increase in meat and dairy product manufacturing. But it still left sales volumes 8.6 per cent lower than they had been a year earlier.

Excluding dairy and meat processing, which is driven by supply rather than demand, sales volumes were down 6.5 per cent. That was a record decline, eclipsing the previous record in the December 2008 quarter.

The only other industries to record an increase were beverages and tobacco, and petroleum and industrial chemicals.

In nominal terms manufacturing sales fell 0.9 per cent in the quarter, seasonally adjusted, or 5.5 per cent excluding dairy and meat processing.

ASB economist Jane Turner said: "The result echoes the composition of export data, with strong agricultural production masking the underlying weakness of the rest of manufacturing, reflecting a sharp drop in both domestic and foreign demand."

BNZ economist Craig Ebert said March quarter sales looked steady only because of a "massive drawdown in previously bloated inventory of dairy products". They were not reflective of better production, he said.

A more timely indicator, the BNZ-Business New Zealand performance of manufacturing index, slipped last month and remains in contraction territory.

"Just when the global activity indicators, particularly around manufacturing, look to be stabilising, the rising currency is causing another layer of concern for the local industry," Ebert said.