New Zealand’s manufacturing sector returned to a minor level of expansion in October, although the sector remains in a flat state, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).

 The seasonally adjusted PMI for October was 50.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining).  This was 2.0 points up from September and the first level of expansion after four consecutive months of no expansion.  Over the last quarter, the PMI has averaged 48.8, and the year to date at 51.2.

 BusinessNZ’s executive director for manufacturing Catherine Beard said that any return to expansion is obviously positive news, but no one should think this is the immediate start of better times ahead for the sector.

 “Looking at the history of the survey, we’ve just come out of the longest consecutive period of contraction since 2009.  On the plus side, an improvement in production and a sharp rise in the number of positive comments by manufacturers are welcome.  However, new orders remain historically low, while those employed in manufacturing have been in decline for five consecutive months.

BNZ senior economist Craig Ebert said the October result gives hope that the sector is stabilizing after going through a rough patch in recent months.

“The best way to describe the latest PMI result is ‘relief’, however headwinds for the manufacturing industry still prevail. The NZ dollar remains high, international demand is patchy, and the NZ economy is looking a bit bumpy and hesitant, including in employment. Until we see a more concerted and consistent pulse in the PMI, we’ll stay reticent about the sector’s immediate growth prospects.”

Three of the five seasonally adjusted main diffusion indices were in expansion in October.  This was led by production (53.8), which experienced its highest result since May.  This was followed by finished stocks (52.1), displaying its highest value since August 2011.  After consecutive falls in activity, new orders (50.9) managed to return back into slight expansion for October, while both employment (49.1) edged lower and deliveries (49.7) improved, albeit remaining in contraction for the last five months.

Given the slight pick-up in the seasonally adjusted result, unadjusted results by region displayed expansion across the board.  The Central region (57.6) led the way for a forth consecutive month, increasing 4.5 points from September.  The Otago-Southland region (54.0) rose 4.2 points to display its highest result since December 2011.  Both the Northern (52.1) and Canterbury/Westland (50.8) regions returned to expansion with their highest results since May this year.