Lockdown sees significant slump in manufacturing levels

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Manufacturing activity has slumped on the back of the latest lockdown, with production levels in freefall.

Manufacturing has been in free all, new figures show.
Photo: 123rf

The BNZ-Business New Zealand Performance Manufacturing Index for August was at 40.1, down 22.1 from the July Index.

A reading below 50 indicates the sector is contracting and above 50 means expansion.

The August index was similar to the result recorded in May 2020 (41.4), but not as severe as the index in April that year (26) when the country was in the middle of its first nationwide lockdown.

The only positive appeared to be employment (54.5) which was above average. All other sub-index values were in contraction, with production (27.7) the hardest hit.

BNZ senior economist Doug Steel said although the latest result wasn’t as bad as the first lockdown last year, there was no denying it was a bad result, especially after the near record levels in July.

“I don’t think you’d want to sugar-coat this. This is a pretty ugly result and it’s quite widespread too as you might expect for August when the country was in lockdown for half the month.”

Steel said while many anticipated a bounce in activity as the country progressed down alert levels, the PMI demonstrated the economic pain being felt.

“This should not be underestimated, even if there is hope for the future. GDP and manufacturing output are expected to fall heavily in Q3. It is something of a reality check in the afterglow of yesterdays very strong Q2 GDP outcome,” he said.

But Steel said the employment growth indicated businesses were holding onto workers.

“Only time will tell if it can stay that way. We suspect the employment resilience reflects firms’ optimism that activity will improve as restrictions ease, a reluctance to let people go given how difficult it has been to find staff prior to lockdown, and the government’s wage subsidy providing many with a financial bridge.”

Steel said it suggested the official employment and unemployment readings for Q3 might be better than expected.

BusinessNZ executive director for manufacturing Catherine Beard said a return to expansion is reliant on less restrictions.

“Although manufacturers outside of Auckland have returned to alert levels that allow business operations to restart, any moves towards the sector getting back into expansion will ultimately depend on how soon Auckland can also return to lower alert levels.”

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