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Growth in manufacturing output slipping

Released at: 14:20, 01/12/2017

Growth in manufacturing output slipping

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Manufacturing Purchasing Managers' Index notes continued improvement in health of manufacturing sector, though at lower levels.

by Minh Do

The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, dipped to 51.4 in November from 51.6 in October. Though continuing to signal an improvement in the health of the manufacturing sector, the rate at which business conditions strengthened was the weakest since March 2016.

“The final quarter of 2017 has been somewhat disappointing for the Vietnamese manufacturing sector so far,” said Mr. Andrew Harker, Associate Director at IHS Markit. “After growth eased in October, there were further signs of weakness in November as new orders rose at a weaker pace and output stagnated. Manufacturers continued to increase staffing levels and purchasing activity at solid rates, however, suggesting that the current soft-patch is expected to be only temporary.”

The rate of new order growth eased for the second month running in November, with slower increases in both total and export orders. That said, new business has now risen on a monthly basis throughout the past two years.

While new orders continued to rise, the weaker expansion resulted in manufacturers holding production volumes broadly steady. The stagnation in output ended a 12-month sequence of growth. There were some reports that material shortages had restricted production. With output broadly unchanged, stocks of finished goods decreased for the fifth month running.

Sources: Nikkei, IHS Markit

The slowdown in new order growth enabled firms to work through backlogged work over the month. Outstanding business decreased for the first time in five months, and at a solid pace that was the fastest since June 2016.

In spite of a stagnation in output and slower growth of new orders, manufacturers continued to take on extra staff at a solid pace. The rate of job creation was broadly in line with that seen in October.

Firms also remained confident regarding the 12-month outlook for production, with predictions of new order growth central to positive forecasts. A further sharp increase in input costs was recorded during November amid higher prices for raw materials. The rise in input costs led firms to raise their own selling prices, the third month running in which this has been the case.

Supply shortages were mentioned by those panelists that recorded a lengthening of vendor lead times in November. Delivery times lengthened for the tenth consecutive month, and to the greatest extent since April.

Difficulties in sourcing raw materials were also reportedly a factor behind a fall in stocks of purchases. Pre-production inventories decreased for the first time in 17 months. This was despite a further solid increase in purchasing activity. Input buying has risen on a monthly basis throughout the past two years, with panelists partly linking the latest expansion to efforts to support inventory levels.

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