NZ BNZ manufacturing falls to 47.1, 13th month of contraction

The New Zealand BusinessNZ Performance of Manufacturing Index (PMI) for March 2023 showed a decline from the previous month's level of 49.1 to 47.1, marking the lowest level since last December and indicating that the manufacturing sector has been contracting for the 13th consecutive month. This data was released by BusinessNZ, an organization that compiles and publishes the PMI report based on surveys of manufacturing businesses in New Zealand.

The PMI is an indicator of the overall health and direction of the manufacturing sector, with a reading above 50 indicating expansion and a reading below 50 indicating contraction. The latest reading of 47.1 suggests that the sector is continuing to contract at a moderate pace.

Key components of the PMI report painted a concerning picture for the manufacturing sector. The production index, which measures the change in the volume of output produced by manufacturers, declined notably from 49.1 to 45.7, indicating a decrease in production levels. This was the lowest level for production since last December and suggests that manufacturers are experiencing a decline in demand for their products or are facing operational challenges that are limiting their ability to produce at full capacity.

Another worrying sign was the employment index, which measures the change in the number of employees in the manufacturing sector. This index also declined, falling from 50.2 in February to 48.8 in March. This suggests that manufacturers are shedding jobs as they struggle to cope with the challenges facing the sector.

The decline in the manufacturing sector is a concern for the New Zealand economy as a whole, as the sector accounts for around 12% of the country's Gross Domestic Product (GDP). The prolonged contraction in the sector could lead to lower economic growth and higher unemployment, particularly in regions where manufacturing is a significant employer.

The causes of the manufacturing sector's struggles are multifaceted and include global supply chain disruptions, rising input costs, and domestic economic challenges such as a strong New Zealand dollar and weak domestic demand. The ongoing impact of the COVID-19 pandemic and geopolitical tensions are also contributing factors.

The Reserve Bank of New Zealand (RBNZ) has acknowledged the challenges facing the manufacturing sector and has kept interest rates on hold at record lows in an effort to support the economy. However, the RBNZ has also signaled that it may need to tighten monetary policy if inflation pressures continue to build, which could put further pressure on manufacturers and other businesses operating in New Zealand.

Overall, the latest PMI data suggests that the manufacturing sector in New Zealand is continuing to struggle and that the challenges facing the sector are likely to persist for some time. This could have wider implications for the New Zealand economy and the employment market, particularly in regions where manufacturing is a significant employer.