NZ factory growth slows in October but stays above expansion threshold

A PMI reading comfortably above 50 offers little reason to question New Zealand's economic rebound, meaning the modest decline is unlikely to alter expectations for the Reserve Bank or the kiwi dollar. Survey participants' emphasis on fuel prices ties the country's industrial sector to the global oil situation. That keeps input expenses and inflationary pressures prominent, even while demand remains steady. Post-election uncertainty acts as a short-term drag on business sentiment, potentially weighing on capital spending until a government is formed. Financial markets will turn to Monday's services index for a more complete picture of domestic activity.

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New Zealand's industrial expansion moderated somewhat in October but remained on solid ground, with holiday demand and infrastructure projects balancing higher fuel expenses and election-related uncertainty.

Summary:

• The seasonally adjusted PMI decreased 1.4 points to 54.9 in October from 56.3 in September, marking a 16th consecutive month of growth
• Deliveries climbed to 61.4 and finished stocks reached 58.0, while new orders eased to 54.3 and production to 53.9
• Employment stayed the weakest sub-index at 51.9, virtually unchanged from September
• Negative responses increased to 56.4% from 53%, with fuel prices, the cost of living and election uncertainty mentioned
• Business South led the regions at 65.0, while Business Central dropped into contraction at 49.1
• BNZ expects moderate manufacturing expansion through Q4 and GDP growth of roughly 2% for 2026

New Zealand's factory sector continued to grow in October, albeit at a slower pace than September's robust figure. The seasonally adjusted BNZ-BusinessNZ Performance of Manufacturing Index (PMI) dropped 1.4 points to 54.9 from 56.3, BusinessNZ announced on Friday. A figure above 50 indicates sector expansion, while below 50 points to contraction. October represented a 16th consecutive month above that threshold.

The breakdown was varied but still healthy. Deliveries increased to 61.4, and finished stocks came in at 58.0, slightly below September's level. New orders fell to 54.3 from 56.8 and production declined to 53.9 from 56.6, yet both remain comfortably in expansion territory. Employment stayed the weakest category at 51.9, nearly unchanged from the previous month.

Catherine Beard, BusinessNZ's director of advocacy, welcomed more than a year of uninterrupted expansion. She noted the easing in new orders and production merits attention. She added that Christmas preparations and steady infrastructure activity suggest manufacturers will end the year on a firm foundation, even as input expenses and living costs burden many businesses.

Survey responses turned somewhat more pessimistic. The proportion of negative comments increased to 56.4% from 53% in September. Respondents pointed to fuel costs, the cost of living and uncertainty following the general election. BNZ indicated that election-related uncertainty is likely to persist until final results are announced and coalition negotiations conclude.

The regional breakdown showed divergence. Business South recorded the strongest result at 65.0, followed by Canterbury at 57.9 and the EMA's northern region at 55.5. The Business Central region fell into contraction territory at 49.1. BNZ noted that every manufacturing subindustry expanded in October.

The broader outlook remains favourable. BNZ stated that the result supports its projection of modest manufacturing growth through the fourth quarter and annual GDP expansion of roughly 2% in 2026. The bank's senior economist observed that although the PMI fluctuates month to month, manufacturing momentum is clearly positive. New Zealand's reading also compares well internationally. It matches the US figure and stands above the global manufacturing PMI of 52.6. The services index, scheduled for release on Monday, will indicate whether the deceleration is confined to the factory sector.