NZ manufacturing still contracting, deeper recession likely

New Zealand's manufacturing sector contracted for the eleventh consecutive month in March and remains in "clear distress", the BNZ-Business NZ Performance of Manufacturing Index (PMI) showed. The PMI, along with updated Treasury forecasts and a recent business opinion survey point to a deeper recession than forecast last year. The seasonally adjusted PMI for March rose to 40.7 in March from 38.9 in February as the contraction in manufacturing worsened in the South Island and improved slightly in the North. A figure below 50 indicates the sector is contracting. The latest PMI result follows the recent Quarterly Survey of Business Opinion (QSBO), with both pointing to a tough time ahead for the New Zealand economy. It also reinforces the possibility of a 50 basis point cut in the Official Cash Rate to 2.5% by Reserve Bank Governor Alan Bollard on April 30. A week ago, Treasury said that New Zealand's economy was in a worse position than it's downside forecast in December. "It's a chorus of concern," BNZ economist Craig Ebert said about the "undeniably sad duet" of the PMI and QSBO. "It's not even telling us that manufacturing activity is about to stabilise, let alone start expanding again, as many are still hoping for before too much longer," Ebert said. Employment in the sector got worse, as did the level of deliveries being made and the level of new orders fell. "There was certainly a lot of feedback to the latest PMI about a lack of forward orders," Ebert said. "Falling activity and sales, along with collapsing profitability, is no doubt why employment in the manufacturing sector is being pruned at a faster rate. The PMI jobs indicator hit an all-time low, of 38.7. Sure, this series is not even seven years old. But the much longer-term staffing indicators from the QSBO were, on average, also the weakest on record "“ and these series go all the way back to 1961. You'd have to be a pensioner to have had grown-up experienced of that previous point of depression," he said. The unadjusted PMI in March rose to 41.8 from record lows in January and February. In these terms, March was the thirteenth consecutive month of contraction in the sector. The unadjusted PMI for Otago fell to a record low of 37.6, while Canterbury recorded 41.0, down slightly from February. The PMI for the Northern region rose from a record low of 33.2 in February to 41.3 in March and rose in the central region from 38.7 to 45.2, still showing contraction.