By Bruce Goldsworthy, EMA, Manager of Advocacy and Manufacturing Services.
The crisis in manufacturing makes grim reading, but thankfully for New Zealand its happening in Australia, not here. Unlike their counterparts across the ditch, Kiwi manufacturers are showing every sign of resilience and investor confidence.
The evidence for the Australian story is most bleak in their Performance of Manufacturing Index (PMI). The Australian PMI is operated by the Australian Industry Group on the same basis as here and in every major country.
For the past 25 months Australian manufacturing has been shrinking. The decline accelerated in July, with manufactured exports going down even faster than sales on their domestic market. New orders in July were at 40.5 on the PMI. The July result at 42 was down 7.6 points from a rare ‘high’ of 49.6 in June.
In contrast, New Zealand’s PMI for July was a seasonally adjusted 59.5, and proving durable. For the first seven months of 2013 it averaged a healthy 56.3 expansion.
Remember the farther the PMI measure is above, or below, the mid 50 point the larger the expansion or contraction occurring.
The commentary on the Australian PMI is telling. A third of respondents noted extreme weakness in local demand, bad news for our exporters dependent on Australian sales. As it is Kiwi exporters to Australia are finding margins slashed due to the fall in the Australian dollar. In less than two months the currencies switched from 78 cents to 88 cents.
But Australia’s manufacturers have yet to see any respite from the fall, though they expect to.
Two weeks ago we read of the Business Council of Australia lamenting the drop off of big new investment projects – down 30 per cent – with one of their members, chief executive of Woodside Petroleum, Peter Coleman noting: “Those who had the GFC have shed their fat. Australia didn’t make the structural changes others were forced to make.”
Even the Eurozone, Japanese and US PMIs are at last in positive space, which augurs well for their job prospects, consumer confidence and a global economic recovery.
The New Zealand experience for those manufacturers able to last out the recession is to be celebrated. All five seasonally adjusted main indices showed a robust expansion in July. Deliveries of raw materials were 62.3; production 62.2, and new orders 62.1. Employment (53.1) is now positive after dipping in June, while finished stocks (52.6) are holding steady.
Another good thing is that the expansion is broad based across all major industries, regions and firm size.
Canterbury (62.7) is leading the way, the North (60.2), Central (58.3) and even the Otago-Southland region (54.7) is improving; the last has now been in expansion for three consecutive months despite several high profile layoffs.
Nevertheless bouts of post GFC recession restructuring are still with us. The recent loss of 50 jobs at Canterbury Spinners Ltd in Dannevirke is an example. Its also worth recalling New Zealand was first into recession in 2007, a year earlier than the GFC really hit.
Though its true the recovery in New Zealand manufacturing is being underpinned by domestic demand from the rebuilding of Christchurch, and demand from a low base for housing in Auckland, that is not the whole story. The recent report from MBIE on hi tech and medium tech manufacturing holds more interesting insights on the type of business that have carried us through, and on where growth in the future is more likely to be found.
High tech manufacturing is defined as those companies spending 8 per cent of their revenues or more on R&D; medium tech manufacturers invest between 2 and 8 per cent. Both sectors tend to do well in good times and bad.
The New Zealand high technology sector is said to be made up of over a thousand firms, with 14,000 employees in all each generating an average surplus over and above their costs of more than $21,000. This group includes companies such as Fisher & Paykel Healthcare and Gallagher.
Employees of the firms in the medium tech sector each generated revenues over $$340,000. This sector includes companies such as Glidepath and Scott Technology and is said to be made up of 4,052 firms employing 33,117 people.
The defining characteristic of these companies is their commitment to advancing their growth through applied technology. Hence they never stand still but are constantly introducing changes. That is the lesson they offer.
While they are still sub sectors representing the smaller proportion of our manufacturing sector overall, the hope for New Zealand manufacturing is many more will join them, and become like them globally focused, export intensive generators of employment and wealth. Bruce Goldsworthy is Manager of Advocacy and Manufacturing Services for the Employers & Manufacturers Association