A sudden slip in manufacturing activity in July is not a sign the economy is returning to recession, economists say.
The national BNZ-Business New Zealand performance and manufacturing index (PMI) for July slipped six points from June to 49.9, with the index for Otago and Southland recording a heavier drop, down nearly 10 points from 58.4 to 48.3.
A score greater than 50 indicates expansion and lower than 50 indicates retraction.
The national PMI was the first time in 11 months that it has slipped below 50, while the local figure ended a three-month run of Otago Southland leading the country in manufacturing activity.
Otago-Southland Employers Association chief executive John Scandrett said the sudden drop showed some manufacturing areas in the region remained weak.
Mr Scandrett said the July survey showed food manufacturing and exporting remained positive, but machinery, equipment, printing, publishing, timber and textiles sector were weaker.
Nationally, production, employment and finished stocks were down or steady but still growing.
Of some concern was the decline in new orders - down 9.8 points at 47.6 since June, its lowest level in 14 months - and deliveries after five months of solid expansion.
Central was the only region to expand, lifting two points since June to 56. Canterbury-Westland lost four points to 49.4, and Northern 3.8 points to 47.8.
BNZ senior economist Craig Ebert said despite these "ups and downs" he remained optimistic the economy was recovering, albeit slowly by historic standards.
"It's conceivable, therefore, that the latest data are simply acknowledging further bumps."
Mr Ebert said it was concerning that the decline was driven by the drop in new orders, then deliveries, which suggested a possible further slowing in manufacturing sector activity was imminent.
Mr Ebert said the suddenness of the decline and turnaround in fortunes meant it was too early to conclude the economy was slipping back into recession.
"The real question that needs answering, therefore, is not the recent data wobbly ... but whether an underlying recovery is still in train, such that the economy will be looking stronger next year compared to now. We still believe it will."
