New Zealand Businesses may be in a downturn but employers are soldiering on, planning modest pay increases.

So concludes the first online survey by the Employers and Manufacturers Association (Northern). The Association covers Auckland, Waikato, Bay of Plenty, and Northland

“While most businesses aren’t planning to downsize, they are putting up their prices and not taking on new staff,” said David Lowe, EMA’s Manager of Employment Services.

“But they seem more uncertain about the future rather than expecting a rout; no one is expecting to crash and burn,” he said.

Disregarding the contributions to their employees’ KiwiSaver accounts, 81 per cent of employers say they will increase staff wages this year.

Most employers expect pay rises to be in the region of 2 to 5 percent.

Some businesses are coping by putting their prices up.

“In all 70 per cent of businesses say they will raise their prices: 37 per cent by less than five per cent; 26 cent expect to raise their prices between five and 10 per cent; just seven per cent plan prices rises more than 10 per cent.

Only 11 per cent (106) are planning to cut staffing levels, though another 20 per cent (187) are uncertain or fairly sure they will. Over half (52 per cent) are definite they won’t be making redundancies and another 11 per cent probably won’t.

When staff leave, 50 per cent of employers won’t replace them. Only 21 per cent say they would definitely replace them.

Staff made redundant (or not replaced) are as likely to be skilled as unskilled.

Overall a general downsizing is not planned in most cases, 54 per cent definitely not. Only 10 per cent have definite plans to downsize.

Meanwhile, New Zealand’s manufacturing activity seems to have suffered a sharp decline in June.

The Bank of New Zealand – Business NZ Performance of Manufacturing Index (PMI) stood at 45.7.

A PMI reading above 50.0 indicates manufacturing is generally expanding; below 50.0 that it is declining. PMI values for June in the years 2002-2007 ranged from 52.6-62.4, with an average score for all months over the history of the survey standing at 54.1.

June’s figure of 45.7 is the second lowest result recorded since the survey began in 2002 (the lowest being 43.7 in November 2005), and the third time in four months that the survey has indicated contraction.

Business NZ chief executive Phil O’Reilly commented:

“The first half of 2008 has been the toughest six months manufacturers have had to deal with for some time, with the possibility of ongoing contraction for the next half of 2008.”

The Bank of New Zealand highlights soaring input costs as the most notable feature of the June result. Senior market economist at the bank, Craig Ebert, says raw material prices were hitting firms hard and could well press higher yet.

“This is adding to a big squeeze on profitability, at a time when sales are stalling. Cash has thus become king, and managing costs paramount,” says Ebert.

Unadjusted results for June showed contraction in activity for all parts of the country. Both the Northern and Canterbury/Westland regions (42.2) recorded the same and lowest level of activity since the survey began. However, the reasoning behind the results was different, as the Northern region suffered low production and new orders, while Canterbury/Westland saw a general fall with all five sub-indexes. Both the Central (45.6) and Otago/Southland (47.9) regions also showed contraction in June.