BNZ - BUSINESSNZ PERFORMANCE OF MANUFACTURING INDEX -1.5 expanding July Value Monthly Change Slower rate Downward trend 10 August New Zealand s manufacturing expansion continued its downward trend, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI for July was (a PMI reading above.0 indicates that manufacturing is generally expanding; below.0 that it is declining). This was 1.5 points lower than June, and the third consecutive month where expansion has weakened. BusinessNZ s executive director for manufacturing Catherine Beard said that the July result produced a few red flags in terms of where the manufacturing sector currently sits. Catherine Beard Executive Director ManufacturingNZ Production (49.0) experienced its lowest level of contraction since May 2015, while the unadjusted PMI was in slight contraction for the first time since January 2017. While employment () rose above the no change mark after two months of decline, new orders (52.6) displayed only minor to moderate expansion. In addition, the proportion of positive comments (48.8%) was overtaken by the proportion of negative comments (51.3%) during July. Those who provided negative comments noted some seasonal factors at play, along with general customer demand slowing. BNZ Senior Economist, Doug Steel said that at this level, the PMI is hinting at more than just a slowdown in the manufacturing sector but outright slow growth. View PMI Time Series Data
Main Indices Regional Results Deliveries 54.5 Production 49.0 Employment 54.6 47.0 Finished Stocks 53.6 New Orders 52.6 52.0 47.0 Manufacturing Snapshot Below average New Zealand s Performance of Manufacturing Index (PMI) has slipped further in July, marking the third consecutive slowing from its big spike in April. More disconcertingly, July s, following June s 52.7, is the second consecutive reading below the series long term average of 53.4. Read more Growth forecasts on notice Being a survey of actual activity not confidence or expectations the PMI results through June and July are not a good look for overall economic growth. Read more Doug Steel Senior Economist Employment better Amid the generally sombre July PMI details, employment was a rare brighter spot. Not that it was particularly strong, but at it was back above the mark following two months below it. Read more View full BNZ Manufacturing Snapshot
PMI Time Series Table Results are seasonally adjusted National Indices Jul 2017 Mar Apr May Jun Jul BNZ - BusinessNZ PMI 55.8 53.1 59.1 54.3 52.7 Production 57.3 52.4.5 53.2 51.4 49.0 Employment 55.0 53.1 54.2 49.6 49.2 New Orders 56.8 54.8.1 56.4 56.5 52.6 Finished Stocks 55.5 54.3 55.1 51.8.3 53.6 Deliveries 56.9 54.7.8 58.2 54.5 View PMI Time Series Data BNZ - BusinessNZ PMI Time Series January 2013- July
International Results J.P. Morgan Global Manufacturing PMI TM 1 August 52.7 USA 55.5 UK 54.4 Japan 51.6 Eurozone 55.1 China 51.0 NZ Australia 52.0 Sponsor Statement BNZ is delighted to be associated with the Performance of Manufacturing Index (PMI) and BusinessNZ. Media Comment For media comment, contact: Catherine Beard: 04 496 65 The association brings together the significant experience of leading business advocacy body BusinessNZ, and business finance specialist BNZ. We look forward to continuing our association with BusinessNZ and associated regional organisations, and to playing our part in the ongoing development of the New Zealand manufacturing sector. Doug Steel: 04 474 6923 Technical Comment Stephen Summers: ssummers@businessnz.org.nz Level 6, JacksonStone House, 3-11 Hunter Street, Wellington 6140 +64 4 496 6444 admin@businessnz.org.nz
RESEARCH Manufacturing Snapshot 10 August Below Average New Zealand s Performance of Manufacturing Index (PMI) has slipped further in July, marking the third consecutive slowing from its big spike in April. More disconcertingly, July s, following June s 52.7, is the second consecutive reading below the series long term average of 53.4. At this level, the PMI is hinting at more than just a slowdown in the manufacturing sector but outright slow growth. Most disturbing is the production index dropping to 49.0 in July, which indicates output contracted in the month. Despite this, inventory rose. This combination suggests demand softened something that needs to be watched closely. Positive new orders provide some chance the production contraction proves short-lived but, at 52.6, they, too, have dropped below their long term average. NZ s PMI has slowed to be near the bottom of comparator indicators offshore, from near the top a year ago. Growth Forecasts On Notice Being a survey of actual activity not confidence or expectations the PMI results through June and July are not a good look for overall economic growth. If the PMI production index stays sub-, it would point to a contraction in manufacturing GDP in Q3. That outcome would make it difficult for overall GDP to pick up in the manner that many, including us, currently forecast on the back of a large fiscal stimulus. Sure, we would not expect the fiscal stimulus mainly directed at households to immediately show up in manufacturing indicators like the PMI but the problem is we are struggling to see signs of it anywhere. Perhaps the boost is being offset by other factors like the economic drag coming from higher fuel prices. Or it may just be a lag before it shows up. In any case, we are conscious that the PMI production index did dip below the mark back in January 2017 for it only to bounce back very strongly the very next month so we don t want to over play one month s result. But, right now, it is fair to say growth forecasts for the second half of are on notice. Employment better Amid the generally sombre July PMI details, employment was a rare brighter spot. Not that it was particularly strong, but at it was back above the mark following two months below it. While July s result may have just been bounce back from prior weakness, it may also be a sign that manufacturers view the dip in production as temporary. PMI employment has pushed back above its long term average. This level is consistent with manufacturing filled jobs returning to positive annual growth following a contraction in the year to June. Low Diffusion Index, seas. adj. 65 55 45 40 Breakeven 35 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: BNZ/Business NZ Position Change Index 62 58 56 54 52 48 Disconcerting Small Positive PMI Momentum Three Month Average Monthly Month PMI World comparison Degree of expansion Degree of contraction China UK NZ Australia US Eurozone Japan World Source: BusinessNZ, BNZ, JPMorgan, Bloomberg Diffusion Index (Seas adj) 85 80 75 70 65 55 45 40 35 30 Region July 2017 July 25-8 03 04 06 08 10 12 14 16 18 Source: BNZ/BusinessNZ, NZIER, Statistics New Monthly/Quarterly Zealand Diffusion Index (Seas adj) 55 45 PMI Production and Manufacturing GDP PMI Production (LHS) Manufacturing GDP, sa (RHS) PMI and Manufacturing Filled Jobs PMI Employment Quarterly % change 8 6 4 2 0-2 -4-6 Annual % change 6 4 2 0-2 -4-6 doug_steel@bnz.co.nz 40 Manufacturing Filled Jobs QES (RHS) -8-10 35 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 Source: BNZ/BusinessNZ, Statistics New Zealand Monthly -12 bnz.co.nz/research Page 1
Manufacturing Snapshot 10 August Contact Details BNZ Research Stephen Toplis Head of Research +64 4 474 6905 Craig Ebert Senior Economist +64 4 474 6799 Doug Steel Senior Economist +64 4 474 6923 Jason Wong Senior Markets Strategist +64 4 924 7652 Nick Smyth Interest Rates Strategist +64 4 924 7653 Main Offices Wellington Level 4, Spark Central 42-52 Willis Street Private Bag 39806 Wellington Mail Centre Lower Hutt 45 New Zealand Toll Free: 0800 283 269 Auckland 80 Queen Street Private Bag 92208 Auckland 1142 New Zealand Toll Free: 0800 283 269 Christchurch 111 Cashel Street Christchurch 8011 New Zealand Toll Free: 0800 854 854 National Australia Bank Peter Jolly Global Head of Research +61 2 9237 1406 Alan Oster Group Chief Economist +61 3 8634 2927 Ray Attrill Head of FX Strategy +61 2 9237 1848 Skye Masters Head of Fixed Income Research +61 2 9295 1196 Wellington Foreign Exchange +800 642 222 Fixed Income/Derivatives +800 283 269 Sydney Foreign Exchange +61 2 9295 1100 Fixed Income/Derivatives +61 2 9295 1166 New York Foreign Exchange +1 212 916 9631 Fixed Income/Derivatives +1 212 916 9677 Hong Kong Foreign Exchange +85 2 2526 5891 Fixed Income/Derivatives +85 2 2526 5891 London Foreign Exchange +44 20 7796 3091 Fixed Income/Derivatives +44 20 7796 4761 ANALYST DISCLAIMER: The person or persons named as the author(s) of this report hereby certify that the views expressed in the research report accurately reflect their personal views about the subject securities and issuers and other subject matters discussed. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report. Research analysts responsible for this report receive compensation based upon, among other factors, the overall profitability of the Markets Division of National Australia Bank Limited, a member of the National Australia Bank Group ( NAB ). The views of the author(s) do not necessarily reflect the views of NAB and are subject to change without notice. NAB may receive fees for banking services provided to an issuer of securities mentioned in this report. NAB, its affiliates and their respective officers, and employees, including persons involved in the preparation or issuance of this report (subject to the policies of NAB), may also from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as advisors, brokers or commercial bankers in relation to the securities (or related securities and financial instruments), of companies mentioned in this report. NAB or its affiliates may engage in these transactions in a manner that is inconsistent with or contrary to any recommendations made in this report. NEW ZEALAND DISCLAIMER: This publication has been provided for general information only. Although every effort has been made to ensure this publication is accurate the contents should not be relied upon or used as a basis for entering into any products described in this publication. Bank of New Zealand strongly recommends readers seek independent legal/financial advice prior to acting in relation to any of the matters discussed in this publication. Neither Bank of New Zealand nor any person involved in this publication accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication. US DISCLAIMER: If this document is distributed in the United States, such distribution is by nabsecurities, LLC. This document is not intended as an offer or solicitation for the purchase or sale of any securities, financial instrument or product or to provide financial services. It is not the intention of nabsecurities to create legal relations on the basis of information provided herein. National Australia Bank Limited is not a registered bank in New Zealand. bnz.co.nz/research Page 2