Business

Manufacturing activity remains solid to start the year

13:07 pm on 11 February 2022

Manufacturing activity remains solid to start the year but there are concerns that could soon change, with Omicron cases expected to spike in the coming months.

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The latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI) for January slipped 1.7 points on the previous month to 52.1, slightly below the indices average of 53.1.

Any reading above 50 indicates the sector is expanding, while anything below suggests contraction.

"At face value, the headline result looks reasonable enough," BNZ senior economist Doug Steel said.

But the details of the January survey of manufacturing firms raised a number of questions, he said.

The sub-indices which measure production, employment, new orders, and finished stocks had all fallen on the prior month.

The employment index was the only category to fall below 50 but Steel said this was likely due to businesses struggling to find skilled staff, rather than weaker demand for labour.

He said the decline in new orders to levels not seen since the middle of last year raised the question of whether demand was slowing.

"After all, economic confidence has fallen recently, house sales were lower (although not low) in the latter part of last year, and inflation and higher rates are chewing into disposable incomes.

The possibility of slower demand seems consistent with the PMI stocks of finished products index (52.8 in January) posting its second consecutive month above its long-term average, albeit a touch less so than December's 53.2, he said in a statement.

Steel said while drawing strong conclusions from one month's data was not recommended, it would be worth monitoring this trend.

"In any case, it has to be said, January's PMI results feel like something of a place holder before Omicron hits proper over coming months along with anticipated higher rates of absenteeism and disruption."