Manufacturing activity dropped back into contraction after four months of expansion, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

The seasonally adjusted PMI for April was 48.0 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 5.8 points down from March, and the lowest level of activity since November 2011. For the first four months of 2012, the PMI has averaged 52.7, compared with 52.0 for the corresponding quarter in 2011.

BusinessNZ’s executive director for manufacturing Catherine Beard said that after a positive first quarter to the year, the fall back in April was disappointing from the perspective of getting the sector back on track.

“While the unadjusted results typically show a drop in activity from March to April, the fall for 2012 was sizeable, led by the key sub-indices of production and new orders. Also, the drop in activity was reflected in the pick-up of negative comments made by manufacturers. While there was no single reason for the poor showing, the high value of the New Zealand dollar, as well as low and slow demand, were the prevalent comments.”

BNZ economist Doug Steel remarked “April’s PMI result was a significant dip. Equally though, just like we were reluctant to buy into the extreme strength in February as an indicator of rapid trend expansion, we are wary of taking April’s result as a signal of a new downtrend. The truth about the trend probably lies somewhere in the middle. It is encouraging that manufacturers, on net, are adding to staff levels.”

Despite the fall in overall activity, two of the five seasonally adjusted main diffusion indices were in expansion in April. However, both production (44.6) and new orders (48.5) fell into decline, which makes up the greatest weight of the overall result. Conversely, employment (51.2) remained relatively stable, with results that have only moved by one point over the last four months. Deliveries (46.3) fell into decline after four months in expansion, while finished stocks (50.3) showed slight expansion after three months in contraction.

Unadjusted results by region showed activity in various parts of the country in contraction during April. Both the Northern (46.2) and Central (49.2) regions dropped to their lowest result since January this year, while the Canterbury/Westland region (42.2) fell to its lowest result since March 2011. The Otago/Southland region (38.3) experienced a significant hit, falling to its lowest level of activity since May 2009.