Manufacturing sector holding its own

Tuesday June 20, 2017 Mark Cox

Despite some glib talk about there being a post-industrial age, or a sector in crisis, Manufacturing in New Zealand has continued to grow in the longer term, at least in terms of production.


According to Statistics New Zealand’s Economic Survey of Manufacturing, the volume of manufacturing output (seasonally adjusted and corrected for price changes) fell by 0.3 percent in the March 2017 quarter, compared to the previous quarter.  However, it was 0.7% higher than a year earlier and 11.4% higher than five years previously.


The graph below shows the pattern of change over the past 10 years.  It shows a steep decline in manufacturing volumes following the start of the Global Financial Crisis at the start of 2008.  Volumes more or less stagnated for two years between early 2009 and early 2011, but they then started to grow relatively quickly.  Measured over the whole 10 year spell, volumes grew by 4.9%.




Over the past year, the largest increases in volumes have come from the Chemicals, polymer and rubber products (up 14.2%) and Petroleum and coal (up 4.6%) industries, while there was a big decrease in Meat and dairy products manufacturing (down 7.1%).  However, the value of Meat and dairy manufacturing actually increased slightly because of higher prices internationally.


graph2During the past 10 years, employment in manufacturing fell by 9.0%, which, combined with the increase in volumes of production, implies modest increases in productivity.  As the graph above shows, the decrease occurred in the three year period from the start of 2007, following which there has been a slight recovery.


Another useful gauge of the health of Manufacturing is Business New Zealand’s / BNZ’s Performance of Manufacturing Index (PMI).  The PMI is more of a barometer than a statistical measurement, but it has the advantages that it is updated monthly, encompasses a range of indicators, and has a broad regional dimension. 


When the PMI has a reading of greater than 50, it indicates that the sector is in expansionary mode, while a reading of less than 50 indicates a contraction.  The graph below shows that the index fell sharply below 50 at the time of the GFC, but then recovered and has been consistently above 50 for the past five years or so.  




The latest reading for the PMI overall is 58.5, which compares with 57.0 in May 2016.  The latest reading for the Production component of the PMI is 59.7 (60.9 in May 2016).  The latest reading for the Employment component is 55.3 (52.8 in May 2016), for New Orders it is 61.2 (60.8 in May 2016), for Finished Stocks it is 54.7 (48.6 in May 2016) and for Deliveries it is 58.1 (55.2 in May 2016).


The PMI for each of Business New Zealand’s regions is also well above 50.  The reading for the Northern region is 63.0 (63.1 in May 2016), for the Central region it is 56.2 (61.5 in May 2016), for Canterbury it is 62.6 (56.6 in May 2016) and for Otago it is 56.4 (45.2 in May 2016). 


Thus, to paraphrase Mark Twain talking about himself: reports of manufacturing’s death are greatly exaggerated.