Business News

Manufacturing activity for July continued the trend of healthy expansion in the sector, according to the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI).  The seasonally adjusted PMI for July was 59.5 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). This was 4.3 points higher than June, and compared with previous July results the 2013 value was the highest since the survey began in 2002, as well as the third highest monthly result on record. Overall, the first seven months of 2013 has averaged a healthy 56.3. BusinessNZ’s executive director for manufacturing Catherine Beard said that the July result provides further impetus into a continuing trend of a sector in good heart for 2013. “Unlike the lacklustre results during the middle part of 2012, the 2013 results have not only held up, but have improved since the start of the year. Positive comments from manufacturers have surged to 67.3%, highlighting an increase in foreign and domestic orders, as well as an uplift in the general economy. “Like previous months, strong new orders and production remain a key element for overall growth in the sector, which was evident in July. In addition, deliveries of raw materials produced its highest level of activity since the survey began, further boosting the overall result.” BNZ economist Doug Steel said the PMI results were very impressive given the marked slowdown in the Australian economy and its importance for NZ manufactured exports. “It just shows how positive domestic demand is becoming.” Given the continuing healthy levels of activity in the sector, all five seasonally adjusted main diffusion indices were again in expansion for July. Deliveries of raw materials (62.3) led the way for July by the thinnest of margins, as production (62.2) and new orders (62.1) […]

Today’s announcement by the Environment Minister Amy Adams that the Government will legislate for independent environmental reporting is an important step forward for the future of New Zealand’s economy and environment, says the Sustainable Business Council, a division of BusinessNZ.  Penny Nelson, Executive Director of the Sustainable Business Council, says “This is welcome news as our economy is reliant on the environment. In order to inform as well as strengthen everyone’s accountability over their use of resources, we need to be able to clearly show the linkages between economic performance, environmental quality and the state of our natural resources.  “Better information will allow businesses to fully understand their impact on the environment in their day-to-day activities and the efficiency of their resource use. It’s about considering how the environment and business can work in harmony, and making better decisions around this. “The proposals announced are ambitious and need to be clear on the purpose of the reporting so we can focus on priorities and data can be sifted efficiently. Defining priorities is crucial if we are to avoid irreversible and large scale losses to our environment, and therefore our economy. “Business looks forward to being part of the conversation with government, environmental groups and data providers about the best data that is useful for decision-makers and cost effective to provide. “If we are going to be serious about greening our economy, green growth-related indicators need to be at the heart of this new legislation. This will allow us to benchmark ourselves internationally and measure whether New Zealand is actually becoming a greener economy overall.”  

A New Zealand owned infant formula manufacturer sold 26,000 tins of its formula in one day of trading as Kiwi supermarkets rushed to refill shelves left vacant by recalled product yesterday. Peak New Zealand, which manufactures and packs its products in NZ uses wet blend technology in the production process and remains unaffected by the crisis. The company’s CEO, Stephen Julian, says he sympathises with Kiwi parents who are confused about what products are safe to use and with the supermarkets who are scrambling to meet the growing consumer demand for uncontaminated product. “We have had warehouse staff working through the night and again first thing this morning packing to fill supermarket orders. “We are going to produce another 60,000 tins of formula in the next month to ensure there is plenty of our formula available to meet the needs of Kiwi mums and dads,” he says. The brand which features a distinctive monkey on the product, produces infant, toddler and follow on formula and is made and packaged in New Zealand. Julian says Peak New Zealand is a 100% Kiwi-owned and operated company with its formula milk and vitamin-enriched milk powder products made from local dairy cows in state-of-the-art manufacturing facilities approved and audited by the NZ Food Safety Authority.  

Changes to the earthquake-prone buildings policy announced today do not adequately address the concerns of business and local communities, says BusinessNZ. Chief Executive Phil O’Reilly says an extension of time in which building owners must upgrade or demolish their buildings from 15 to 20 years does not significantly improve the policy. “The problem lies with central government imposing a regulatory requirement when market-based solutions are a more reasonable approach. “Insurance companies are already re-pricing risk. Riskier, more earthquake-prone buildings are attracting higher premiums and this will automatically lead to building owners strengthening their buildings accordingly, or demolishing them. Putting a regulatory requirement on top of this situation – where building owners have 20 years to upgrade or demolish – will be difficult for some local councils and smaller communities with older, heritage or low-yield buildings. A number of buildings could effectively become worthless unless they can be upgraded within the 20-year timeframe. “The policy is a form of ‘regulatory taking’ but contains no provision for compensation for affected building owners. “This one-size-fits-all requirement doesn’t take account of local conditions. Local authorities should be able to deal with earthquake risk according to their local risk profile so that rational trade-offs can be made by communities most likely to be affected by earthquake-prone buildings.”        

BusinessNZ has welcomed today’s announcement today of new health and safety legislation to be administered by the recently established Worksafe New Zealand. BusinessNZ Chief Executive Phil O’Reilly said it was a significant step in the right direction. “Moving to a principles-based regime in which health and safety responses are tailored to the business rather than the current one-size-fits-all approach will be a real help to many businesses, as will a simpler approach to levy setting and other costs. “We are also pleased to see a heavy emphasis on clarifying responsibilities and on providing information and guidance to businesses and their employees.” Mr O’Reilly urged that care be taken in finalising the law to avoid unintended consequences. “We only have a blueprint at this stage. It heralds the most significant changes in 20 years and the details of the final law will need to be worked through carefully.” “It will be important to continue to talk to business regarding the realities on the ground, so that law can be developed that is fit for purpose in the New Zealand work environment,” Mr O’Reilly said.    

 New cost/benefit formulae will help boost the big transport infrastructure projects urgently needed in Auckland and elsewhere, the Employers and Manufacturers Association says.  “Extending the time for calculating the return on investment on transport infrastructure is timely, and a welcome move,” said Kim Campbell, EMA’s chief executive.  “Its great the government has paid attention. But its surprising the NZ Transport Agency did not call attention to the changes when it made them last month. Radio New Zealand news noted the change today. “We and others have been saying the cost/benefit ratios and the discount rates applied by the government to critical land transport projects failed to reflect their useful life, and were used to delay them. “Its obvious projects like the AMETI – East West link and the City Rail Loop will keep on delivering excellent benefits far longer than the 30 years life on which they are based. “The short life spans were giving false readings of the real value of transport infrastructure. “Likewise the discount rate for the return on investment to be achieved was previously set at eight per cent but its now more competitive and internationally aligned at six per cent. “Other changes to how benefits are calculated are listed in the NZTA’s Economic Evaluation Manual on their website (see below). “The changes will help greatly with funding both public and private transport options. “We look forward to Treasury updating its method now too, for calculating value and return on investment.”  

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during July 2013, shows total sales in June 2013 decreased 29.48% (export sales decreased by 16.21% with domestic sales decreasing 39.3%) on June 2012. The NZMEA survey sample this month covered NZ$305m in annualised sales, with an export content of 51%. Net confidence fell to 13, down from the 33 result reported last month. The current performance index (a combination of profitability and cash flow) is at 98, down from 104 in May, the change index (capacity utilisation, staff levels, orders and inventories) went down to 103 from 105 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 102.67, from May’s result of 103. Anything less than 100 indicates a contraction. Constraints reported were 63% markets, 25% production capacity and 13% skilled staff. Staff numbers for June increased year on year by 1.31%. “After an improvement last month export sales are back on the falling trend, year on year, since late 2012; in contrast to an improving trend on domestic sales, now both domestic and export sales are in decline. The three month average for employment has levelled out offsetting a decline for most of this year,” says NZMEA Chief Executive John Walley (pictured). “This suggests that for manufacturers and exporters in general, there is no cause for a party.” “The currency did ease back in May and June and gave some hope, but it remains a slightly less overvalued lottery.” “As anticipated, the Reserve Bank of New Zealand (RBNZ) chose to hold the Official Cash Rate (OCR) at 2.5%, and once again acknowledging the negative effect the overvalued dollar is having on exporters, while pointing out the risk the overheating housing market has on financial stability. An earlier than […]

For our economic recovery to continue and based on exporting many of manufacturing exporters will need to diversify into markets beyond Australia, says Kim Campbell, chief executive of the Employers and Manufacturers Association.  “Times are tougher than for many years in Australia, our biggest market for manufactured goods, and the climbing trans Tasman cross rate is cutting into margins,” Mr Campbell said. “Early this year people were panicking over the high US dollar and the Australian dollar was low; now the position has reversed with a 10 per cent switchover for each currency. “In fact the change is already taking a toll with manufactured exports to Australia down 4 per cent for the 12 months ended June 2013 to $6.1billion, excluding dairy, meat and wood pulp.  “Some years ago we were planning a parity party with Australia, followed most recently by several years of the most favourable trans Tasman cross rate ever. Currencies fluctuate. “The answer to managing currency volatility is to diversify into new markets and invest in productivity gains through better equipment, skills development and innovation. “A longer term solution in our own hands would be to increase our savings rate which would mean not having to rely so much on overseas capital to fund our voracious appetite for housing.”    

Education performance information should include measures of value, says BusinessNZ.  Information released today shows improved achievement levels in the courses and qualifications completed by students in New Zealand tertiary education organisations. BusinessNZ Chief Executive Phil O’Reilly has welcomed the release of the information but says it is time to consider the economic value of tertiary education alongside the current education performance indicators.  “The introduction of education performance indicators has resulted in improved performance as defined by courses and qualifications completed and student retention rates and progression to high level qualifications,” Mr O’Reilly said.  “But these are internal measures of the system and tertiary education organisations. “Internal measures are useful but need to be balanced with information on the value produced from these qualifications. “New Zealand’s labour productivity growth has generally been lower than most other OECD countries, despite increases in our labour quality (as defined by people with qualifications). “It’s time we focused on whether New Zealand gains the full economic value from increases in the number of people completing course and qualifications. “The challenge now is to turn this improved tertiary achievement by students into a more competitive and productive New Zealand.”      

Some events seem to be going New Zealand’s way with the economy making steady progress as it recovers from the deep recession during 2008 and 2009, according to ASB’s latest Quarterly Economic Forecasts. ASB Chief Economist Nick Tuffley says, “Momentum is becoming more evident across a broader range of economic activity, which is a pleasing development. The lower NZ dollar across several currencies will be providing some relief for a number of exporters, and strong dairy prices have enabled Fonterra to forecast a robust milk payout for the new season in the wake of the drought.” Mr Tuffley is particularly encouraged by the domestic outlook, “The rebuild of Canterbury continues to gather momentum. Recovery in the region is spreading beyond construction to other activity, such as employment and retail spending.” Nevertheless, Mr Tuffley warns New Zealand still faces some challenges. “That’s because the global environment still has potholes.” Mr Tuffley points to the increase in political instability in Europe, and the increased uncertainty around Australia’s and China’s outlooks. These developments have been broadly offset by encouraging economic signs in the US and Japan. In addition, strong house price growth in Auckland and Canterbury is causing the RBNZ concerns that any future pullback in prices could impact the financial system and broader economy. Mr Tuffley says, “Domestic developments have the RBNZ in a bind: higher interest rates are the most effective way to curb rising house prices, but the inflation outlook doesn’t warrant higher interest rates just yet.” Mr Tuffley sees a strong possibility the RBNZ will impose restrictions on new mortgage lending with high loan-to-value ratios. However, Mr Tuffley points out, “Such limits risk placing the burden of dealing with overheating house prices on first-home buyers, arguably the most deserving of prospective home buyers.”