The Bank of New Zealand – Business New Zealand Performance of Manufacturing Index (PMI) stood at 40.7 in March, an improvement from the 38.9 recorded in February but well below previous March figures.

Manufacturing indices results for March were similar to what we have seen over the last 10 months. These results indicate that manufacturing activity is continuing to contract, with four of the five sub-indices measured recording a value below 41. This contraction is being “helped” by a slowdown in domestic and global demand for our manufactured products as households and businesses continue to be cautious about their expenditure.

Leading the weakening was the indices for employment. Employment has recorded values below 50 since January 2008; but, with a value of 38.7 for the March month this is the lowest value recorded for employment since the survey begun. This indicates that further job losses may occur in this sector as firms cut costs by decreasing the number of shifts they operate or close down their operations.

The indices for the delivery of raw materials and finished stocks have stayed fairly consistent throughout the first quarter of 2009. The delivery of raw materials increased slightly between February and March, from 40.8 to 40.9, while finished stocks dropped slightly, from 49.1 in February to record 47.9 in March indicating that some firms are running down their inventories. Both of these indices have recorded values in the high 40s low 50s range since March 2008.

New orders (40.6) returned to levels similar to those seen in January, after dropping to a record low in November of 34.8. Comparing year on year, the drop in new orders is more apparent as this index recorded a value of 43.1 in March 2008 and 57.6 in March 2007.

Production (37.1) has also recovered from the record lows seen in November 2008, but has recorded values below 40 throughout the first quarter of 2009. This index has been contracting since February 2008.

Another indicator of continuing contraction in manufacturing was the latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions.

This survey was completed during March 2009 and showed total sales year-on-year in February 2009 decreased 25 percent compared to February 2008. Of those firm surveyed, export sales decreased by 15.9 percent during this period while domestic sales decreased 30.9 percent. Staff numbers year-on-year from February 2008 to February 2009 also fell by 6.85 percent. Unsurprisingly given these figures, markets and demand were recorded as major constraints for the firms surveyed.

Slight improvements off-shore but weak remains a key word

Looking across the Tasman, manufacturing has continued to contract in Australia but latest PMI figures suggest that this contraction is beginning to ease. The Australian Industry Group-PricewaterhouseCoopers Australian PMI rose slightly in March 2008 to 33.4. All indices continue to be below 50 and manufacturing activity fell in all of the states except Tasmania where it rose slightly. Similar to New Zealand, Australian manufacturing firms have concerns about weak domestic and global demand for manufactured products.

Globally, manufacturing activity remains weak. Month-on-month the JPMorgan Global PMI improved slightly from 35.8 recorded in February, to sit at 37.2 in March. This is still well below the 50 points that indicates manufacturing activity is expanding, but some commentators believe that the worst of the global contraction in manufacturing activity may be coming to an end. This seems quite an optimistic stand given weak demand, low confidence and global economic uncertainty. However, stimulus packages, bailouts, global leader summits and company restructuring and retrenching must produce something positive for manufacturers – surely.