NZ factory activity accelerates as PMI hits 56.5, 15 months of growth

The improved reading offers a modest boost to the kiwi dollar, reinforcing signs that the economy's goods-producing side is picking up momentum as the year draws to a close. Solid demand for new orders and robust output suggest resilience in the near term, while the resumption of hiring is the aspect policymakers are expected to monitor with particular interest. Fuel expenses remain the most frequently mentioned cost concern among businesses, meaning that any additional uptick in oil prices could squeeze profit margins and potentially undermine confidence, which is already gloomier than the headline figures imply. Uncertainty surrounding the general election adds a domestic layer of risk to capital-spending choices.

Newswire cut:
New Zealand's BNZ-BusinessNZ manufacturing PMI surged to 56.5 in September from 53.3, marking its 15th consecutive month of expansion, with finished stocks and deliveries leading the way and employment also returning to growth despite fuel costs and election uncertainty.

One-line wrap:
New Zealand's factories posted their strongest performance since 2021 outside of June, yet the companies behind the numbers express far less enthusiasm than the index suggests.

Summary:

• The seasonally adjusted PMI increased by 3.2 points to 56.5 in September, surpassing the long-run average of 52.5
• The industry has now seen growth for 15 straight months
• Finished stocks (59.0) and deliveries (58.8) led the way, with production and new orders both at 57.0
• Employment was the weakest sub-index at 51.8, yet it moved back into expansion from 50.0
• Excluding June's 60.1, it was the highest reading since 2021
• 53% of respondent comments were negative, with fuel prices and election uncertainty cited

New Zealand's manufacturing sector saw a distinctly quicker rate of growth in September, as the BNZ-BusinessNZ Performance of Manufacturing Index climbed to 56.5 from 53.3 in August. The seasonally adjusted figure sits comfortably above the survey's historical average of 52.5. This marks a 15th consecutive month above the 50 threshold that signals expansion versus contraction.

The gains were widespread. Finished stocks topped the sub-indices at 59.0, with deliveries following at 58.8, while production and new orders each rose firmly to 57.0. Employment came in as the weakest component at 51.8, but it returned to growth after holding at 50.0, the no-change level, in August.

BusinessNZ Director of Advocacy Catherine Beard welcomed the outcome. She highlighted the return of employment growth as a potential indication that manufacturers are increasingly open to taking on new staff. She noted that the combined strength in new orders, production and finished stocks pointed to real momentum heading into the last quarter, though respondents continued to factor in cost-of-living pressures.

BNZ Senior Economist Doug Steel observed that, apart from June's unusually high reading of 60.1, September's figure was the best since 2021. He called it a notable achievement given the variety of domestic and international challenges confronting the sector.

The positive headline did not fully carry over into business sentiment. Slightly more than half of the comments from respondents were negative, with companies continuing to flag fuel expenses and pre-election uncertainty. Others mentioned seasonal upticks in activity, orders placed ahead of Christmas and stronger demand as reasons for optimism.

That disparity is the main takeaway for observers. Encouraging forward-looking indicators like new orders suggest activity should remain solid in the short term. However, persistent fuel costs and election-related uncertainty could dampen investment and hiring if they endure. Part of September's improvement may also stem from seasonal and pre-holiday ordering rather than a fundamental change in demand.

The upcoming test is whether October's survey confirms this momentum, especially in employment, which remains the most fragile aspect of the data.