Manufacturing activity in November points to solid economic growth

New Zealand's manufacturing activity lifted in November, reversing October's post-election slide and pointing to solid economic growth in the sector.

The BusinessNZ-Bank of New Zealand performance of manufacturing index rose 0.4 of a point to a seasonally adjusted 57.7 in November, continuing its run of expansionary readings above 50 in every month since October 2012.

"Various recent surveys have seen business confidence falter during and after the government formation process. In contrast, the performance of manufacturing index, notably a survey of business outcomes rather than sentiment, has remained rock solid over recent months," said BNZ senior economist Doug Steel.

Four of the five sub-indices rose, with production up 1.2 points to 62.1, employment up 2.6 points to 54.2, finished stocks up 1.9 points to 57.5 and deliveries up 0.8 of a point to 58.9. New orders, however, dipped 2.3 points to 57.6.

Steel noted production "led the charge," reaching its highest level since mid-2013. It supports the idea that manufacturing gross domestic product has accelerated in the final quarter of the year, after what looked like a solid third quarter, he said. Steel said he expects next week's GDP data to show that manufacturing GDP rose around 1 percent in the third quarter. "All up, it's positive momentum in output," he said.

While the PMI is strong, there are some details worth monitoring as "possible vulnerabilities," Steel said. The PMI inventories index is now at the highest level since the survey started back in 2002 and while there are signs of demand "it would be remiss to not consider the inventory build as a potential vulnerability if future demand were to disappoint expectations," he said.

Steel also said another area to watch is food processing with its PMI jumping up to a heady unadjusted 74.5, its second-highest ever level behind November 2012's 79. "This has the potential to pull back if spreading dry weather conditions were to dent primary production," he said.

(BusinessDesk)