Sales Flat for Manufacturers, but Positive Future Expectations

9 August 2016

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during July 2016, shows total sales in June 2016 decreased 0.43% (year on year export sales decreased by 0.53% with domestic sales decreasing by 0.17%) on June 2015.

In the 3 months to June, export sales decreased an average of 1.5%, and domestic sales increased 5.5%. The NZMEA survey sample this month covered NZ$305m inannualised sales, with an export content of 70%. Net confidence fell to 20, down from 33 in May.

The current performance index (a combination of profitability and cash flow) is at 99, down from 102 last month, the change index (capacity utilisation, staff levels, orders and inventories) was at 99, down from 101 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 105.33, up on the last result of 104. Anything over 100 indicates expansion.

Constraints reported were 53% markets, 33% production capacity and 13% skilled staff. A net 20% of respondents reported productivity increases for June. Staff numbers for June increased 0.17% year on year.

Supervisors, tradespersons and, managers, professional/scientists reported a moderate shortage and operators/labourers reported a minor shortage.

“Year on year export sales experienced a slight fall, after a modest increase in May, leading to an average monthly fall of 1.5% in the last 3 months. Domestic sales are flat in June, though significantly lower than the nearly 14% year on year increase last month that led growth for manufacturers. These results gave a monthly average growth of 5.5% for domestic sales in the last 3 months.” Said Dieter Adam.

“The index and sentiment measures this month show some falls on last month, with the confidence measure down from 33 to 20, and both the performance and change index moving into contraction. However, in contrast to this, the forecast index moved even higher than last month, staying in expansion. Despite current pressure on sales and sentiment, manufacturers still have a positive expectation of the future – hopefully this eventuates into stronger sales results throughout the rest of 2016.

“Production capacity is becoming more of an issue for manufacturers, with the constraint reaching the highest level since February 2015. The market constraint increased on last month – the currency remains overvalued and well above expectations.

“It was great to see the Reserve Bank of New Zealand (RBNZ) propose more lending limits in the housing market to promote financial stability against building private debt, and the Auckland Unitary Plan appears to be a solid step forward needed to increase the supply of housing. We hope this gives the RBNZ the confidence to follow through on their talk and start to move our exchange rate on the much needed downward correcting trend.

“There were also a number of comments regarding challenges competing with low cost, low quality imports into New Zealand, which may be adding to pressure on domestic sales. As we have seen in the steel industry, this is an area which needs to be watched to ensure Kiwi consumers are protected and manufacturers are operating in a fair environment.“ Said Dieter.