14 Jun 2013

Manufacturing activity leaps ahead

5:34 pm on 14 June 2013

Activity in the manufacturing sector has hit its highest level for almost nine years.

The BNZ-Business New Zealand seasonally adjusted performance of manufacturing index (PMI) jumped to 59.2 in May from 55.2 the previous month. A reading above 50 indicates expansion.

The rise in activity is underpinned by the Christchurch rebuild, a buoyant food processing sector and a relatively competitive exchange rate with Australia. However, some manufacturers have cauioned that conditions remain tough.

BNZ economist Doug Steel says optimism has returned to the sector which has struggled in recent years with a subdued economic recovery and high New Zealand dollar.

"It is a stunning result. The PMI indices don't get much bigger than this, whether it's in New Zealand or even globally."

Mr Steel says the Canterbury rebuild has helped push activity in the sector to its highest level since June 2004.

He says employment has recorded its strongest result in nearly six years as the pick-up in the pace of construction has bolstered firms' optimism to hire more people.

The executive director of Manufacturing New Zealand, Catherine Beard, says as well as activity being buoyed by the Christchurch rebuild, manufacturing is up because of a strong food processing sector and a relatively competitive exchange rate with Australia.

She says employers are only confident about hiring people if they are really sure there is going to be sustainable growth.

The Northern region also showed a strong upswing in activity, the Central area experienced a slight dip and Otago and Southland bounced back from recent declines to show strong expansion.

Manufacturers say conditions remain tough despite a survey showing activity hit a nine year high.

Caution expressed despite figures

Manufacturers say conditions remain tough despite the encouraging data.

Fletcher Building says sales of construction material improved due to a lift in house building, but it's coming off a low base and firms have plenty of spare capacity.

Export-orientated manufacturers are also cautious, saying demand is depressed in their main market, Australia.

Nevetheless, a lobby group Manufacturing New Zealand says construction will remain robust for years to come, bolstering activity and creating more jobs.