The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during November 2014, shows total sales in October 2014 decreased 4.61% (year on year export sales increased by 1.11% with domestic sales decreasing 8.81%) on October 2013.

The NZMEA survey sample this month covered NZ$482m in annualised sales, with an export content of 45%.

Net confidence fell to 6, down from 32 in our survey last month.

The current performance index (a combination of profitability and cash flow) is at 98, up from 94.3 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 101, down from 106 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 107.33, down on the last result of 108.67. Anything less than 100 indicates a contraction.

Constraints reported were 53% markets, 35% production capacity and 12% skilled staff. Net 35% of firms reported a modest rise in productivity for October.

Staff numbers for October broke trend for the first time in eight months and decreased year on year by 2.05%. Tradespersons, supervisors, managers, operators/labourers and professional/scientists reported a moderate shortage.

“This month’s results were somewhat less positive than recent months. Total sales fell in line with recent trends, however export sales, which have been printing significant year on year improvements throughout 2014, saw only a slight increase of 1.11%,” says NZMEA Chief Executive John Walley.

“We will be looking to see if exports bounce back to their recent trend of strength over the
coming months.”

“Confidence decreased, reversing recent improvements. The performance index improved, probably indicating that the lower currency is working through to better margins of late, but still shows in contraction (below 100), while the forecast and change index both fell, but remain in expansion.“

“There have been further falls in dairy prices and terms of trade this week, but our currency remains high and fails to significantly respond. The theory has always been that the currency moves with respect to changing economic fundamentals (of which dairy prices and terms of trade are traditionally key indicators) which can help to balance some external movements – however in practice this auto-stabiliser is not working.”

“The Reserve Bank of New Zealand (RBNZ) has room to cut the OCR, as inflation remain lower than expected and inflationary pressures are falling in regard to dairy pay-out knock-ons and oil prices. This could help return our currency to fair value and take pressure off margins to exporters. Calls are growing from others for action on the OCR. Deflation is also becoming a larger concern for to the global economy. Cutting the OCR is one thing but asset prices also need to be restrained by effective macro-prudential efforts from the RBNZ; small open economies need to deal with the backwash of cheap money chasing yield.”

“In a speech early this week RBNZ Governor Graeme Wheeler talked about the need for broader macro-prudential action against asset price inflation and to complement monetary policy – we believe these are overdue and encourage the RBNZ to work through to implementation in this area.“