NZ manufacturing falls in June as costs soar, margins slip

Thursday 10th July 2008

New Zealand manufacturing activity dropped in June as companies reported soaring costs for raw materials and less ability to raise prices.

Manufacturing fell 2.2 points to a seasonally adjusted 45.7 in June, according to the Bank of New Zealand Business NZ Performance of Manufacturing Index, the second-lowest level since the survey began in 2002.

"The added cost pressure is one of the reasons profitability in the New Zealand manufacturing sector is being hammered," said Craig Ebert, BNZ's senior markets economist. Combined with fading pricing power and weaker sales, the situation is "a nasty combination for firms to have to manage, as there are now easy ways out."

The survey tallies with findings in the New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion that showed companies became the gloomiest about profits in more than 25 years. The benchmark NZX 50 Index dropped 1.4% today, snapping two days of gains.

"The first half of 2008 has been the toughest six months manufacturers have had to deal with for some time, with the possibility of ongoing contraction for the next half of 2008," Business NZ chief executive Phil O'Reilly said in a statement. "The current run of data shows a more persistent trend downwards."

The PMI showed measures for production, employment, new orders, finished stock and deliveries all fell in June.

The biggest slump in the PMI was in Canterbury/Westland, where the regional index fell to 42.2 from 56.2. The Northern region fell to 42.2 from 49.3 and the Central region dropped to 45.6 from 50. Otago/Southland reported the least deterioration, falling to 47.9 from 48.3.

By Jonathan Underhill

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