End of year dip for the manufacturing sector

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Manufacturing activity has slowed after six months of growth, but the dip could just be “monthly noise”.

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The BNZ-Business New Zealand Performance of Manufacturing Index (PMI) for December dropped 6 points to 48.7, indicating contraction.

BNZ senior economist Doug Steel said the result was disappointing but not completely surprising given six months of expansion – where the index read above 50 points.

“Perhaps the December dip is just monthly noise. It will pay to monitor upcoming results to confirm that or otherwise.

“The PMI’s three-month moving average sits at an expansionary 51.8, albeit below its long-term average of 53. This all suggests some expansion in the final quarter of last year, but the softer December month suggests some caution heading into the New Year.”

He said volatility had been more pronounced within the component measures, making it harder to spot any underlying trends.

For instance finished stocks swung from below 50 points in September and October to 59.2 in November, only to plunge to 45.9 in December.

“A similar pattern is seen in the PMI’s deliveries of raw materials index. This volatility coincides with numerous reports of freight and logistical issues. Along with volatility in new orders, it all has a bit of a stop-start feeling to business conditions.”

Steel also noted the employment sub-index eased back below 50 with manufacturers reporting difficulty in finding staff.

“Interestingly, the gap in difficulty finding skilled staff vs unskilled staff is at its widest since 2000 – perhaps a sign of an increasing skills mismatch.”

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