Manufacturers welcome softening of the NZ$, but weak demand remains

Wednesday September 11, 2013 Fiona Stokes

In our previous commentary on manufacturing we noted that the first quarter of 2013 was looking positive for manufacturing. 

Now the numbers are in for the second quarter of 2013, and we can see the impact that the warm, dry conditions at the beginning of the year has had on manufacturing sales volumes, and in turn the amount of New Zealand meat and dairy products on the international market.




Statistics New Zealand reports that, after adjusting for seasonal effects, the volume of dairy exports fell 17 percent in the June 2013 quarter and meat exports fell by 7 percent.  The meat and dairy product manufacturing trend was rising throughout 2012, and its fall impacts on total manufacturing sales volumes.


The Ministry of Primary Industries (MPI) in their situation and outlook for the primary industries 2013 notes that, in the short term, farmers will be carefully managing their livestock to ensure they maintain condition leading into calving and lambing, and working through pasture recovery issues.


However, poor stock condition will impact on the number and weight of livestock for slaughter, which in turn will impact on export (manufacturing) sales volumes, and sheep and beef farmers’ incomes. 

Despite this, MPI expects primary sector export revenues to increase as the sector continues to ‘tap’ growing markets in Asia and the New Zealand dollar gradually softens.


A gradual softening of the New Zealand dollar is also something members of the New Zealand Manufacturers and Exporters Association are welcoming.  In the latest survey, manufacturing export sales decreased by 3.7 percent, with domestic manufacturing sales decreasing by 1.7 percent in July 2013 compared to July 2012. 

Overall, total sales decreased by 2.6 percent year-on-year.  Members reported the following constraints: markets 55 percent, production capacity 18 percent, skilled staff 18 percent, and capital 9 percent.  The slowing of the Australian market in particularly was seen as a challenge.


This sentiment is also reflected in the other survey we monitor – the BNZ-Business NZ Performance of Manufacturing Index. 

The seasonally adjusted PMI stood at 59.5 in July 2013, which is an increase on the PMI readings in June (55.2) and similar to that in May (59.1).  Of the five seasonally-adjusted indicators that make-up the PMI, all sat above 50 with deliveries (62.3), production (62.2) and new orders (62.2) all sitting above 60.  In regards to three-monthly averages, the PMI stood at 58.0 in the three months to July, with new orders sitting above 60 during this time, and employment hovering between 51 and 53. 




This contraction and expansion is also seen at a regional level, where 12 months ago manufacturing in the Northern, Canterbury and Otago regions was experiencing a contraction.  In July 2012, for example, manufacturing activity in the Otago region had a PMI reading of 45.8, while in July 2013 this reading stood at 54.7.  The 3-month averages, useful to eliminate erratic and one-off spikes, also indicate a solid improvement in the performance of manufacturing compared to the previous year.