Manufacturing activity picks up, signalling economic expansion

The BNZ-BusinessNZ performance of manufacturing index (PMI) rose to a seasonally adjusted 54.7 last month, from 53.2 in October. A reading of 50 separates expansion from contraction.

The manufacturing sector has been expanding since October 2012. The latest monthly reading showed an improvement across all five sub-sectors of the index, with the measure of new orders at a five-month high, boding well for the outlook.

"Strong new orders, especially relative to still-falling inventory, are a positive signal for more production ahead," Bank of New Zealand senior economist Doug Steel said in his report. "All this certainly affirms our thinking that the economy has grown a bit faster in the second half of 2015 than it did in the first half."

The latest reading on manufacturing comes after strong third-quarter manufacturing data released on Tuesday, prompting BNZ to increase its forecast for third-quarter gross domestic product to 0.6% from a previous estimate of 0.5%.

Mr Steel said manufacturing activity was boosted by increased construction, underpinned by record high migration and low interest rates, and as strength in some primary sectors offset the drag from a weak dairy sector.

The PMI showed the measure of new orders increased to 57.8 from 55.8 in October, while production advanced to 53.5 from 53.2. Deliveries rose to 54.4 from 52.5, and finished stocks gained to 49.9 from 49.1.

Meanwhile, the employment measure rose to a five-month high of 53.7 from 53.2 in October.

"The three-month average has been trending higher in the second half of the year after a relatively slower first half," Mr Steel said. "It bodes well for more manufacturing employment growth ahead."

The proportion of positive comments increased to 68.6% in November from 61.8% in October and 58.7% September, with many citing seasonal factors, and good demand from local and overseas customers.

(BusinessDesk)