Business New Zealand says the manufacturing sector is bracing itself for continuing challenges despite a return to confidence for the first time in four months.
The BNZ-Business New Zealand Performance of Manufacturing Index shows activity in the manufacturing sector rose two points to 50.5 in October.
A reading above 50 indicates the sector is expanding.
Business New Zealand executive director of manufacturing Catherine Beard says the sector has come out of the longest consecutive period of contraction since 2009.
She says while there has been an improvement in production and manufacturers are showing more positivity, new orders remain historically low and employment in the sector has declined for five consecutive months.
Ms Beard says the environment will continue to be challenging and many of the negative comments relate to slow demand.
She says consumers need to be in a more confident frame of mind and be prepared to spend more for it to flow through into manufacturing orders.
Ms Beard says what happens in Australia also impacts on New Zealand manufacturing.
She says the stronger the Australian economy, the better it is for New Zealand manufacturers because it's one of New Zealand's top export markets.
Ms Beard says there are some positives in the index with some sectors going strongly with food, beverage and tobacco at 73.3.