July 3, 2020    < 1 min read

The latest data shows New Zealand’s manufacturers appearing to shrug off the ‘80% economy’, reaching pre-Covid levels of activity at the end of June.

The average number of Purchase Orders, Sales Orders and product assemblies processed all reached or exceeded levels not seen since February this year, when disruptions were largely limited to companies with supply chain exposure to the Wuhan region in China.

The data in question has been sourced from Unleashed Software’s inventory management and business SaaS product. Essentially the figures offer a live snapshot of economic activity via Unleashed’s worldwide user base, primarily made up of product-based manufacturers, online retailers and wholesale-distributors. Data has been aggregated by country and does not reflect individual company performance.

In this Recovery Report:

NZ purchasing rebounds

Most promising for the overall New Zealand economy is the uptick in the flow of Purchase Orders from manufacturers to their suppliers in the last weeks of June. A Purchase Order is a request to buy a set quantity of goods at a set price, and once accepted by a seller it becomes a binding legal contract.

In this context that makes them a leading indicator of economic activity: a Purchase Order pre-dates the flow of funds that occurs when a sale is completed. They also reflect a likely increase in business confidence on behalf of manufacturers issuing them – either because the firm in question has itself made a sale, or they have confidence that they can do so.

A V-shaped recovery?

Looking at the graph above, the effect of the March 26 lockdown can be clearly seen, with purchasing rebounding only after the April 28 return to workplaces allowed non-essential factories to restart.

However since the June 9 return to Alert Level 1 manufacturing appears to have operated around 20% below Pre-Covid levels, based on purchasing, stoking fears of the so-called 80% economy. Concerns that were reinforced when Statistics New Zealand revealed that in the March 2020 quarter NZ GDP fell 1.6%, the largest fall since 1991, and goods-producing industries dropped 2.7%. Meanwhile, Xero’s Small Business Insights for May show small business revenue growth was down 22% year-on-year.

However Unleashed data from the last fortnight shows this reduced economy rebounding – for the goods-producing sector at least.

Looking at the Sales Orders completed shows a similar picture for New Zealand businesses: A dramatic dip during the lockdown period; a rebound and scramble to fulfil backlogs; a dip into a ‘new normal’ zone below pre-Covid levels, followed by a late recovery within the last fortnight.

Manufacturers in focus

Zooming in on the manufacturing sector within Unleashed’s data by examining product assemblies paints a similarly positive image of that sector.

As soon as the New Zealand lockdown ended on April 28, a huge spike in product assemblies occurred, presumably as a backlog of orders was processed. This fell away in the following weeks, but has since rebounded to the highest ‘normal’ levels of 2020.

Australian economy booming

Compared to the sharp dip experienced by New Zealand, Australian businesses benefitted from their less stringent lockdown rules. While the long-term effects are yet to be seen, the economic aspect of their approach to Covid-19 has to date seen their economy little affected, with economic activity trending upward earlier than New Zealand, and eventually dramatically exceeding their pre-Covid performance.

Similarly, manufacturing assemblies in Australia have rebounded, with notable spikes and an overall upward trend in that sector.

UK and US manufacturers face an uncertain future

Compared to New Zealand and Australia, the United Kingdom and United States have had a more protracted experience of the Covid pandemic, and are yet to exit the crisis to the extent of the southern hemisphere nations.

Comparing the countries directly is relatively meaningless – the different countries operate at different scales in terms of the number (and especially value) of sales and purchases. However, comparing the trend lines is revealing.

The UK, like NZ and Australia, has suffered a dramatic business slowdown due to widespread lockdown measures, but is still only slowly recovering, with gains in terms of purchasing and sales during June still not reaching pre-Covid level.

The US on the other hand has not had the dramatic dip of the other three nations, but has seen some suppressed activity, coupled with an overall determination to keep business open, despite the wider societal impacts.

Similarly, in the graph below, which shows the average number of product assemblies – a key indicator of activity within the manufacturing sector – the US has seen volatility, including notable recent dips, but a general upward trend in activity.

Whereas the UK shows the distinctive rebound that followed the easing of nationwide work-from-home orders that affected factories so severely, with continued below-average output afterwards into June.

Limitations of the data

While the dataset of companies used in preparing this report is significant – Unleashed is used by several thousand companies worldwide – it should be noted that the companies here may not represent the full spectrum of goods-producing businesses: by their nature companies using software as a service products may be more mature than other businesses in their sector, and able to more quickly respond to the broader economic environment.

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