Manufacturing Index slumps to record low, reaffirming scope of recession

The unadjusted BNZ Capital-Business NZ Performance of Manufacturing Index (PMI) fell to a record low score of 36.9 in February. The index fell from 37.9 in January and was down from an average score of 52.6 in the preceding six February months. A score above 50 in the index represents expansion in activity, with a score below 50 representing contraction. The seasonally adjusted PMI for February fell to 38.6 (from 41.8 in Jan and 52.1 in Feb 08), its second lowest score on record (Nov 08: 35.1). These latest figures reaffirm the scope of the current recession and come after the Reserve Bank of New Zealand cut the Official Cash Rate by 50 basis points to 3%. RBNZ Governor Alan Bollard said he thought there would be a gradual recovery in the economy later in 2009 and into 2010. "A significant increase in the number of negative comments received by the survey indicates that three out of every four manufacturers are experiencing negative influences on their business," Business NZ chief executive Phil O'Reilly said. "Offshore results are also indicating that the bottom of the activity cycle might be lower than first thought, which could mean 2009 will prove worse than 2008 for many manufacturers," O'Reilly said. For unadjusted figures, the 'production' component of the index fell to a record low of 32.4; 'employment' fell to a record low of 37.2; and 'deliveries' fell to a record low of 38.6. 'New orders' (36.6) and 'finished stocks' (45.6) were up slightly from record lows in January. All had scores above 50 in February 2008, except 'employment' (46.1).

"This highlights the benefit that some exporters are getting from the sharply lowered New Zealand dollar," Ebert said. "However those manufacturers who import components are facing ongoing cost pressures. This is hard for many to absorb at a time when demand is withering," he said. All four regions in the survey experienced contraction: The PMI for Northern region fell to a new record low of 33.2, as did Central region at 38.7. Canterbury region rose slightly to 41.5 and Otago fell to 44.5. All had results over 50, or slightly below 50 in February 2008 and all were above 50 in February 2007.