Manufacturing activity slowed further in June with a 2.2 point drop from the previous month according to the Bank of New Zealand-Business NZ Performance of Manufacturing Index (PMI) to 45.7.

Manufacturing activity has consolidated over the last six months, but this drop in the PMI in June was significant. It is the second lowest result since the Survey began in 2002, and is the lowest June value recorded. The previous lowest result for June was in June 2007 (52.6).

Four out of five indices weakened in June with finished stocks being the only indicator showing any signs of expansion. Production (42.3), new orders (44.8), employment (45.6) and deliveries (41.9) were all below 50 points, where 50 points indicates manufacturing activity is expanding. Finished stocks showed minor expansion with 50.6, up from 49.5 in May, but down from previous activity levels recorded this year.

For the third time in four months the PMI has been lower than 50, and Business NZ chief executive Phil O’Reilly is terming this ‘the perfect storm’ as input costs rise along with a fall in domestic demand.

The manufacturing sector in New Zealand is more robust than it was five years ago. But, globally, manufacturing activity is contracting, which could further impact on manufacturing here.

As a result, this slowdown in manufacturing activity in New Zealand may continue throughout 2008 fuelled by increasing raw material costs and decreasing sales. There are concerns that more manufacturing job losses could occur.