Working towards a “why” of changes in manufacturing

There has been a long-running debate in New Zealand and around the world about the “hollowing out” of manufacturing – ultimately this is a subset of the wider concern about tradable vs non-tradable economic activity in NZ.  Also as we have said, it may be possible that what we are seeing is scarcity easing in manufacturing – a situation where we would expect productivity rise, and potentially employment fall.

With this in mind the RBNZ undertook research to figure out in what ways manufacturing output has changed post-crisis.  This can be found here.

By the way, I love the title “building a picture of New Zealand manufacturing”.  It captures the descriptive essence of economics :D

Now, what comes out of this research?

  1. Employment fell during the GFC, and hasn’t recovered.
  2. Productivity has risen
  3. Exporting sectors have done well, due to their exposure to Australia.  The low NZ$ to Aussie and a strong Aussie market for plant and machinery (think fridges as much as capital equipment ;) ) have helped out even as global demand has been weak.
  4. Import competiting sectors have been hit – as imported capital equipment, and imported consumer goods, have been cheap.  This is a story of the high dollar, and potentially “overcapacity” overseas.
  5. Construction, and the related drop in domestic demand for manufactured goods (think furniture and hardware as well – a retail area that has been gutted), has had a major impact.
  6. Although manufacturing is currently close to where we would expect given construction – during the deepest parts of the crisis it was worse.

These trends are important to note.  It is construction exposed industries that have struggled the most – not firms looking to export (although this is definitely not to suggest that there have been difficulties for exporters – after all, this is a massive global slowdown).  Painting it this way shows that the “solution” to any perceived “problem” is unlikely to be as clear as some people writing articles are keen to suggest ;)