A PMI reading above 50 indicated the manufacturing sector was in expansion. Photo: 123RF
Activity in the manufacturing sector has edged higher, with employment levels at their highest since August 2021 despite a tight labour market.
The BNZ-Business New Zealand Performance of Manufacturing Index (PMI), rose 0.8 points in February to a seasonally adjusted 52.
A PMI reading above 50 indicated the sector was in expansion, however the reading was still under the long-term average of 53 points.
Employment levels meanwhile jumped markedly, to 54.0, well above its trend level of 50.7 unemployment sitting close to record lows at 3.4 percent.
BNZ senior economist Craig Ebert said such labour market strength may further fuel inflation.
"The indications are that we need to see some relief coming in the labour market, so if the employment picture is picking up once again, it could just be putting added pressure on what we already know is a very tight market.
"That in turn could tell us that some of the inflation pressure that's coming from the labour market could be maintained as well, which is an issue for the Reserve Bank."
Ebert said there was also a question mark around where the extra workers were coming from.
"We did wonder about the extent to which the migration story is starting to feed into this.
"We know the migration numbers are starting to pick up to be net inward, strongly so, to the extent that they might be starting to feed into these supply constraints, providing more people for the labour market."
Ebert said the number of new orders also rebounded last month, though they are still below the historical average.
Production stumbled back into contraction territory however, at 49.4 compared to 52.0 in January, the lowest level since June 2022.
BusinessNZ drector, advocacy Catherine Beard said February's result pointed towards higher levels of activity, as the year started off with two months of consecutive expansion.
"With a further lift in activity for February, the proportion of negative comments from manufacturers dipped to 60.2 percent, compared with 69.9 percent for January, 63.5 percent for December and 58.4 percent for November.
"Manufacturers were somewhat split with some noticing a slowdown in sales and enquiries, while others noted a bump in activity, including new customers both domestically and offshore."