The manufacturing sector is back in expansion mode but it continues to be plagued by Covid-related absenteeism, freight and logistics issues.
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The BNZ - Business New Zealand performance of manufacturing index (PMI) rose 2.7 percent in July, to 52.7.
A reading above 50 indicated the sector was in expansion.
Production levels improved but remained in contraction, and new orders returned to expansion, but not enough to make up the lost ground in June.
BNZ senior economist Doug Steel said employment growth was the stand out for the month.
"[It is] a little bit surprising; partly because we know that firms have been having so much difficulty finding labour and to see a lift in employment for the manufacturing sector sort of raises the question of where do these people come from?
"It may be that it's from other sectors of the economy as firms bid for what is a very scarce resource at the moment."
He also said it raised the question whether the wider labour market was even tighter than it appeared.
Steel said a continuing theme of the PMI was that smaller firms under-performed compared to larger firms.
It was again the case in July, with micro firms (one to ten employees) well behind the rest in contraction.
Smaller to medium, medium to large and large firms were all in expansion.