New Zealand Manufacturing Expansion Fastest Since May

New Zealand’s manufacturing industry expanded at the fastest pace since May while consumer confidence surged to the highest in 2 1/2 years, adding to signs of economic recovery and boosting the local currency.

The Performance of Manufacturing index increased to 55.2 in January from a revised 50.4 in December, Business New Zealand and the Bank of New Zealand Ltd. said in a statement released in Wellington. A gauge of consumer confidence rose to 121 in February, the highest since June 2010, ANZ Bank New Zealand Ltd. and Roy Morgan Research said in a separate report.

Rising house price are boosting consumer confidence, while manufacturing output is being buoyed by demand for building materials in the earthquake-damaged South Island city of Christchurch. Central bank Governor Graeme Wheeler has said he’s monitoring house prices and the quake reconstruction progress to gauge emerging pressure on resources and inflation.

“Over the coming years, we anticipate the positive flow-on effects of a stronger construction sector to broaden to other parts of the manufacturing sector,” Doug Steel, economist at Bank of New Zealand Ltd., said in the statement.

New Zealand’s dollar rose as high as 84.93 U.S. cents, matching the strongest since September 2011. It bought 84.78 cents at 1:55 p.m. in Wellington from 84.15 cents immediately before the release of the manufacturing index.

Rates Outlook

Traders see a 25 percent chance Wheeler will raise the official cash rate by July from a record low 2.5 percent, up from 5 percent odds a month ago, swaps data compiled by Bloomberg show.

The gains in manufacturing were led by production and new orders, today’s report showed. An index over 50 shows the industry is expanding. Employment in the industry remained in contraction. The challenge for manufacturers in 2013 is slowing demand in Australia, which buys about a quarter of all New Zealand’s exports, Steel said.

“Comments regarding the Australian market from respondents have been getting increasingly downbeat,” he said. “In January they turned decidedly sour.”

Consumers are more positive about their financial prospects in a year’s time and more optimistic about the outlook for the economy, ANZ Bank said. Slightly fewer said it was a good time to buy a major household item.

“This appears to reflect the tensions being played out as housing market tailwinds counter headwinds from a subdued labor market,” Mark Smith, a Wellington-based senior economist at ANZ Bank, said in the report.

House prices rose 6.2 percent in January from a year earlier, the fastest annual increase since March 2008, Quotable Value NZ said this week. Employment fell for a third straight quarter in the three months through December, according to a government report Feb. 7.

Separately, food prices rose for the first time in five months in January, gaining 1.9 percent, Statistics New Zealand said today. From a year earlier, prices increased 0.8 percent.

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