The Bank of New Zealand – Business New Zealand Performance of Manufacturing Index (PMI) stood at 51.7 in September, up 3.0 points from August (48.7) and 2.0 points from July (49.7). This result is an improvement year-on-year, and indicates that manufacturing activity in New Zealand is beginning to show signs of expansion for the first time since April 2008. A PMI reading above 50 indicates manufacturing activity is expanding, while a result below 50 indicates contraction.

Four of the five seasonally adjusted sub-indexes measured recorded an expansion, with new orders (56.3), employment (51.2), deliveries (51.1), and production (51.6) recording values above 50. Four of the five seasonally adjusted sub-indexes measured also recorded an improvement on the previous month. Finished stock recorded a result poorer than the previous month, down 4.3 points from the 48.7 recorded in August, and was also the only sub-index to continuing showing signs of decline.

The new orders sub-index has been recording slight improvements since June, but this month was the best result to date, up 6.0 points from August. The second best result month-on-month was the employment sub-index which improved 4.3 points from August. This is the highest value recorded for the seasonally adjusted employment sub-index since November 2007, when it stood at 57.2. As indicated in the figure below, this index has been below 50 for some time and while it is positive to see an improvement this month, the three-monthly average remains below 50 and may continue to stay there for some time.

Looking at manufacturing activity by industry sub-group it can be observed that the food, beverage and tobacco manufacturing sector continues to do well. Between July and August manufacturing activity in this sector rose 4.5 points to 56.3, while between August and September manufacturing activity expanded by 3.8 points to 60.1.

The petroleum, coal, chemical and associated products sector experienced a sharp fall to 46.8 in August, but recovered in September gaining 8.7 points.

The three-monthly average for the PMI improved in September to sit at 50.9, up from the 48.0 recorded in July. All three quarterly average indicators have improved, with employing showing the strongest result, up 4.0 points. Over the last three months, production has averaged 50.9, an improvement on the previous quarters and the best result seen since January 2008.

Turning to the regions, the unadjusted activity for September is quite a different picture than that seen in August with all regions recording an expansion in manufacturing activity this month. As shown in the figure, a comparison of manufacturing activity in the regions year-on-year indicates improvements could be starting to slowly happen. Last month the Central and Canterbury regions recorded an expansion in manufacturing activity while activity in the Northern and Otago regions contracted. This month, manufacturing activity in the Central (50.7) and Canterbury (53.3) regions remained above 50 but contracted by 1.6 and 3.1 points respectively. Comparing month on month, the Otago region lead the way for the second month in a row with an improvement in manufacturing activity of 10.5 points. While the Northern region also improved up 5.5 points respectively from August.

Manufacturing activity in Australia recorded its second consecutive month of modest growth in September. The Australian Industry Group-PricewaterhouseCoopers Australian PMI rose 0.3 points from 51.7 in August to 52.0 in September. This is the highest level of manufacturing activity recorded since December 2007 and is being driven by rises in production, inventories, and supplier deliveries.

Looking at the sub-indexes, new orders was the only seasonally adjusted sub-index to decline between August and September, down 9.3 points to 51.0. The employment (49.7) seasonally adjusted sub-index continues to contract but has improved from last month where it stood at 40.5. Following 20 consecutive monthly falls in manufacturing employment, this sub-index is finally beginning to show signs of stability. Another index beginning to show signs of stability is finished stock. This seasonally adjusted sub-index rose 3.8 points between August and September to sit at 51.8.

Seven sectors saw a rise in manufacturing activity in September, compared with six in August and four in July. The chemicals, petroleum and coal products, and printing and publishing sectors recorded significant rises in activity, while the clothing and footwear, food and beverages, fabricated metal products, and transport equipment sectors saw more modest increases.

Globally, the JPMorgan Global Manufacturing PMI stood at 53.0 in September, down 0.1 points from August. While global manufacturing has expanded for the second consecutive month, the pace of expansion has slowed. Employment remains the only sub-index to remain below 50, sitting at 46.9 in September, up 0.4 points from August.

International trade volumes are beginning to increase, and the level of new orders has risen through the third quarter of 2009. However, European manufacturing continues to be weaker than the global average and output gains in the US have eased compared to previous months.