NZ: Solid jump in Q3 manufacturing activity - ANZ

Phil Borkin, Senior Economist at ANZ, notes that the New Zealand’s manufacturing activity rose solidly in Q3, with core sales volumes lifting 2.3% q/q – the strongest quarterly growth since June 2002.

Key Quotes

“This was well above our expectations so certainly points to some reasonable upside risk to our bottom-up estimate for Q3 GDP growth (currently +0.6% q/q).

• Total manufacturing sales volumes rose 2.1% q/q in Q3, building on Q2’s 2.2% q/q growth. The movement in headline sales often gets thrown around by swings in meat and dairy product manufacturing, although sales volumes in this sector rose a decent 1.6% q/q in Q3. Anecdote does suggest a poor spring for milk production, especially in the North Island, but that looks like it could be more of a Q4 story. 
• Stripping out the meat and dairy impact, “core” sales volumes rose 2.3% q/q, which is the strongest growth since 2002. It is this component that is most relevant in terms of estimating the upcoming GDP figures (due 22 December) and it was stronger than we had pencilled in. The growth was also broad-based, with nine of the 12 core industries experiencing higher sales volumes in the quarter. Leading the lift was an 11% q/q surge in petroleum and coal product manufacturing (although this component is highly volatile). Chemical, polymer and rubber product manufacturing also experienced a solid increase. 
• Adding to a positive production story, we estimate that seasonally adjusted core manufacturing sector inventories rose 2.2% q/q. 
• New Zealand’s manufacturing sector continues to outperform global peers. While weak demand and over-capacity issues are plaguing manufacturing globally (although there are some signs of a turn in the global cycle), strong construction is a key factor underpinning reasonable manufacturing numbers locally. Even the elevated NZD is failing to dent performance meaningfully. While the latest PMI data has eased a touch, it is still pointing to a reasonable pace of expansion in Q4 as well.”