Manufacturing activity is holding close to record levels driven by strong production, orders, and new jobs.
Labour shortages shape as the biggest obstacle for many industries, an economist says. Photo: 123RF
The BNZ-Business New Zealand Performance Manufacturing Index (PMI) for July increased to 62.6, the second highest recorded and 1.7 above the June index.
A reading above 50 indicates the sector is expanding. The highest ever recorded PMI was 63.6 in March.
Deliveries of raw materials continued to pick up (57.9), production (66) and new orders (65) were above average, and employment (58.3) hit record levels.
BNZ senior economist Craig Ebert said that "while New Zealand's PMI is doing exceptionally well, we are also conscious of the headwinds happening for global manufacturing. This is on account of the resurgence of Covid-19 in its Delta strain."
He said driving the increase in the PMI in July were a few industries "that were dragging the chain in June".
"For example, printing, publishing and recorded media jumped to [an unadjusted] 74.0, from 49.0. Wood and paper products improved to 61.0 in July, compared to 53.5 in June. Non-metallic mineral products spiked to 85.0, from 50.8, while 'other' manufacturing strengthened to 65.2 after waning to 46.3 in June.
"The food & beverage component of the PMI, meanwhile, continued along in a moderate growth mode, with an index reading of 53.5," Ebert said.
But the "hottest topic" of the economy right now is arguably the labour market, Ebert said.
"It's still a wonder as to where the people are coming from to fill the positions [especially with the borders effectively shut]. But the PMI employment index is one of many pieces of information suggesting lower lows in the jobless rate are in train," he said.
ManufacturingNZ executive director Catherine Beard said while the figures look good, there is a lot of negativity and unease, particularly relating to a tightening labour market.
"There's nothing worse than having a whole lot of demand and great order books and wanting to supply that and wanting to grow your business, but not being able to, because you just can't find the people.
"And certainly some of our exporters in the manufacturing space are getting a little nervous that it becomes less attractive to import from New Zealand because the shipping costs have gone up so much and the time delays of getting products," she said.
Beard said it is a potential vulnerability for an island nation that is a long way from its customers.