Manufacturing activity expands in September as new orders, production jumps

Manufacturing activity in September was the strongest since February 2008, the latest BNZ Capital-Business NZ Performance of Manufacturing Index (PMI) showed. Seasonally adjusted manufacturing activity expanded for the first month since April last year as production, new orders, employment and deliveries rose from August. September recorded a seasonally adjusted PMI score of 51.7, from 48.8 in August. A score above 50 represents expansion in activity, while a score below 50 represents contraction. This data tallies with recent signs of 'green shoots' in the domestic economy, but will cause some to worry that the Reserve Bank may have to lift the Official Cash Rate from its current record low of 2.5% earlier than the latter part of 2010, which it has previously foreshadowed. Unadjusted figures show activity in the sector expanded for the second month in a row, with September's score of 53.2 up from August's 50.2. Business NZ said four of the five seasonally adjusted main diffusion indices displayed expansion in September from August. Regionally, Otago and Southland led the way:

New orders (56.3) again led the way with its highest result since November 2007, while production (51.6) bounced back from a decline in August to record its highest level since April 2008. Employment (51.2) displayed positive growth for the first time since January 2008, and a significant boost on the record lows experienced throughout 2009. Deliveries of raw materials (51.1) continued to improve with expansion for the current month, while finished stocks (44.4) was the only sub-index continuing to show decline. Unadjusted activity for September showed expansion for all regions for the first time since November 2007. Otago/Southland (58.7) led the way with a significantly improved result from the previous 8 months. The Northern region (52.8) recorded its first expansionary result since December 2007, while the Central region (50.7) dropped 1.6 points from August. The Canterbury/Westland (53.3) region also fell back from the previous month, but continued a run of three consecutive expansionary results. Manufacturing by industry sub-groups were largely expansionary in September, with some significant differences between sub-groups. The food, beverage & tobacco sector (60.1) continued to show significant gains with a 3.8 points rise to again record the highest expansion for the month. The petroleum, coal, chemical & associated products sector (55.5) recovered sharply from the August result, with a result only marginally below the July value. Metal product manufacturing (48.0) remained largely unchanged from August, while machinery & equipment manufacturing (49.1) improved on the July/August results. Comparing New Zealand's manufacturing activity with the rest of the world, the JPMorgan Global PMI for September (53.0) was slightly ahead of the New Zealand result. The USA PMI (52.6) remained largely unchanged from August, while the Australian PMI (52.0) continued to track upwards with expansion, and a similar result to New Zealand. Although the September result showed expansion after 16 months of contraction, the proportion of negative comments made by respondents remained largely unchanged (60.6%), compared with 60% in August, 59.9% in July and 67.0% in June.