The Manufacturers and Exporters Association believes the sector may be looking at another round of job losses if sales do not recover soon.
The association's new survey of business conditions shows that total sales in February fell 25%, compared with the same month in 2008.
Year-on-year staff numbers were also down, falling nearly 7%.
Association chief executive John Walley says the sales slump was concentrated in building and vehicle related trade.
Mr Walley says some businesses have already been through their first wave of job losses and many will be working hard to keep the capacity at current levels in the hope that things are going to improve.
"Give it two or three more months without improvement, and I think we'll see another wave of capacity reductions."
Mr Walley says the recent surge in the New Zealand dollar is dampening hopes for a recovery in export returns.
The survey represents manufacturers with annual sales totalling more than $500 million.