The dual squeeze: how manufacturers should respond to rising costs and falling demand
Rising costs and softening demand are arriving together. How a business responds is a commercial decision, not just a cost one.
For over a year now I've been tracking New Zealand's BNZ–BusinessNZ manufacturing PMI. The businesses I work with as a Fractional CCO/CMO are manufacturers and industrial-technology firms, so it's one of the first places I get a read on what's coming for them, usually before the official economic data catches up.
The end of last year looked like a recovery taking shape. However, in the last couple of months it's turned – and it's turned at the same time as costs have started climbing again.
That combination, softer demand and rising costs at once, presents a critical decision point for most companies. I've seen this before. Most make the same first move, and it costs them later.
Where things stand
New Zealand's manufacturing PMI for April was 50.5. [1] The PMI is a monthly survey of manufacturers, and 50 is the line between growth and decline, so 50.5 still counts as growth, but only just. Underneath that figure, new orders fell from 55.0 to 48.2 – below 50, and shrinking. Production and employment were still positive.
It's worth noting that this came only months after NZ's PMI reached a four year high of 56.1 in December 2025. [2] At the time reports suggested business confidence was the highest it had been in twelve years. [3] Since then the PMI has eased every month since – 55.2 in January, 54.6 in February, 52.8 in March, 50.5 in April. [4]
So it's no wonder about 64% of the manufacturers surveyed described April conditions as negative, and many gave the same reason: the war against Iran, and its effect on fuel, freight and the cost of bringing materials in.[1] Smaller firms had it worst, with those of ten or fewer staff recording 39.2, while larger firms were still growing. [1]
Over the Tasman, Australia is further along the same path. After peaking at 52.3 in January, with the expansion driven by foreign demand and new export orders,[5] its manufacturing PMI slid to 50.7 in May. [6] This is still technically in expansion, but the figure is misleading. It is largely inflated by supply-chain delivery delays rather than underlying domestic demand strength. [6]
New orders there have fallen for three months in a row, and selling prices are rising at their fastest rate in almost four years.[6] S&P Global, which runs the survey, has warned Australian manufacturing output could shrink this quarter. [6]
The real-world dual squeeze
For a lot of mid-market manufacturers or industrial technology companies, the impact of these factors are pretty straightforward: their costs are rising and their customers are slowing down. That's the dual squeeze.
When a business gets hit by both at once – costs up, demand down – there are two obvious responses.
The first response is to cut back – reduce costs, delay spending, protect cash until things improve. That keeps the business stable for now, but it doesn't do anything about the orders that aren't coming in, and it leaves you behind when demand returns.
The second way to react is to sell harder, which is difficult when demand is weak and costs are high. Increase prices and you risk lost sales or frustrated customers, hold them where they are and the rising costs keep taking your margin. An operations-led business will just pass the increase on to customers by default.
But neither response addresses the problem on its own.
What gets cut first
Most manufacturers respond by tightening up operations, and when conditions are this tight that's sensible – often it has to be done first.
NZIER's March-quarter Survey of Business Opinion [7], taken just after the conflict in the Middle East caused a fuel-price surge and shipping disruptions, found a net 9% of firms had cut staff, with more planning to pull back on investment in buildings and machinery over the coming year.
But the commercial side of the business usually gets cut back at the same time, and that's the part that makes the squeeze worse.
By the commercial side I mean the decisions about pricing, about which customers and which parts of the market to focus on, and about how to handle a price rise with a customer without losing them. It's the part of the business that affects what work comes in, rather than what it costs to deliver. When money is short, the commercial side is usually first to be cut. It's hard to prove what marketing returns, and often CEOs find it easier to cut than take the time to work out the value.
I came across a business earlier this year that had spent a fair amount on marketing over about ten months and couldn't point to anything it had produced. So rather than look at how to improve the effectiveness, they'd decided that spending was optional rather than necessary.
That's the trap. Without the right structures and processes, the commercial side can't show a clear return, so it's first to go, even though it's the part of the business that could bring in the growth that would ease the pressure. Once it's cut, the squeeze starts to feed itself: fewer orders mean less money to invest in winning new ones, which means fewer orders again.
The same pressure, different shapes
The same pressure shows up in different ways. One manufacturer I've spoken with recently has a product it spent years developing, finally ready to sell, with almost nothing in place to market it – and it's been hit at the same time by higher freight costs, an expansion that didn't pay off, and orders dropping mid-year. Its response is to fall back on the customers it already has rather than fund the launch.
Another business has a division that's been losing money for a while, with fixed costs it can't easily reduce, and sales opportunities that used to take around a year now dragging out far longer. The owner has a full pipeline and is worried none of it will close in time to help. It needs more revenue before it can add capacity, but it needs the capacity to win and deliver that revenue, so it's stuck.
A third has grown as far as it can at home and is pushing offshore, but has just shelved a live expansion project purely on cost.
In each of these, the decisions that matter are commercial ones: Which customers do you protect when you can't protect all of them? When you put prices up, which customers can absorb it and which can't, and how do you tell them without damaging the relationship?
The answer being pushed right now is mostly digital – automate, bring in AI, do more with fewer people. That can lower what it costs to make things. It doesn't tell you which customers to keep when orders fall, or how to put prices up without losing them. Reaching solely for a technology fix treats a commercial problem as an operational one.
What it comes down to
The businesses that come through this best do the opposite. One NZ tooling manufacturer had no marketing at all three years ago. It put in roughly what a single overseas salesperson would cost, kept that spending going through the downturn instead of cutting it, and held its sales steady while other firms went backwards. It treated the commercial side as worth protecting, and kept it running when the easy choice was to cut.
That's the choice underneath the squeeze. Every decision you make is a trade-off between staying stable now and being able to grow again when conditions improve. The commercial side is the part that brings growth back, and it's usually the first thing to go. Remove it now and the recovery takes longer.
That's worth being clear about before you decide what to cut.
I'm Michelle Haynes, founder of Emergence Fractional, a fractional CCO/CMO for New Zealand manufacturers and industrial-technology firms. I work with companies navigating exactly these commercial capability questions – particularly companies with strong technical foundations looking to scale. If this sounds like you, I'd welcome a conversation.
I also send a fortnightly update with commercial insights and ideas for manufacturing leaders – sign up here if that's useful.
Sources
[1] BNZ–BusinessNZ Performance of Manufacturing Index, April 2026 release ("Holding on to expansion") — https://businessnz.org.nz/pmi/holding-on-to-expansion
[2] BNZ–BusinessNZ Performance of Manufacturing Index, December 2025 release — https://businessnz.org.nz/pmi (figure reported at https://www.rnz.co.nz/news/business/584244/manufacturing-activity-hits-four-year-high)
[3] NZIER Quarterly Survey of Business Opinion, December quarter 2025 — https://www.nzier.org.nz/publications/nziers-qsbo-shows-a-strong-rebound-in-confidence-as-recovery-starts-to-gain-traction
[4] BNZ–BusinessNZ Performance of Manufacturing Index, monthly releases, December 2025–April 2026 — https://businessnz.org.nz/pmi
[5] S&P Global Australia Manufacturing PMI, January 2026 — https://www.pmi.spglobal.com (figure reported at https://www.rttnews.com/3615853/australia-manufacturing-pmi-improves-to-52-3-in-january-s-p-global.aspx)
[6] S&P Global Australia Manufacturing PMI, May 2026 — https://www.pmi.spglobal.com (reported at https://www.australianmanufacturing.com.au)
[7] NZIER Quarterly Survey of Business Opinion, March quarter 2026 (released 21 April 2026) — https://www.nzier.org.nz/publications/nziers-qsbo-shows-business-confidence-shaken-by-the-us-israel-war-with-iran-quarterly-survey-of-business-opinion-april-2026
