NZ manufacturing activity falls to 2-year low in January as production drops

New Zealand manufacturing activity fell to a two-year low in January, as production declined for the first time in two-and-a-half years, new orders were flat and inventory jumped.

The BNZ-Business NZ performance of manufacturing index fell to a seasonally adjusted 50.9 in January, from a revised 57.1 in December, and recording its lowest level since December 2012. The index has been in expansion, at a level above 50, for 28 months.

The latest monthly snapshot of manufacturing shows production recorded its first contraction in activity since August 2012, at 47.5, while new orders fell to the lowest level since December 2012 of 50.1 and deliveries slipped to the weakest since May 2014 at 53.4. The slowdown in activity pushed the measure of finished stocks to its highest level since September 2014 at 56.1.

"The PMI suggests manufacturing production fell in January. Disconcertingly, new orders were flat and inventory jumped. This is not a good mix," BNZ senior economist Doug Steel said. "It all smells of an involuntary inventory build caused by insufficient demand. If so, it does not bode well for production ahead, short of a bounce back in demand."

Even though the latest figures cover the summer holiday period, the extent and detail of the PMI raises questions about the strength of growth early in 2015, Steel said.

The New Zealand dollar fell as low as 73.45 US cents, from about 73.71 cents ahead of the data, and was recently trading at 73.67 cents.

All four regions were in contraction in January, with the Northern region recording its lowest value since August 2012 of 45.5, the Central region posting its second consecutive contraction of 47.5, the Canterbury/Westland region falling into contraction for the first time since December 2013 of 48.3 and the Otago-Southland region declining to levels of activity similar to mid-2014 of 46.6.

The proportion of positive comments in January declined to 58.9 percent from 64.3 percent in December.

Manufacturing activity across industry groups was mixed, with machinery and equipment manufacturing at 54.8, food, beverage and tobacco manufacturing at 54.4 and metal product manufacturing at 51.1.

Meanwhile petroleum, coal, chemical and associated product manufacturing fell into decline at 37.5, the lowest reading since 2009, following a slump in global oil prices.