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October PMI at five-month low

Released at: 14:29, 01/11/2017

October PMI at five-month low

Illustrative image (Source: ndh.vn)

Manufacturing growth slows in October compared to September, with the Purchasing Managers' Index slipping from 53.3 to 51.6.

by Quang Huy

Vietnam’s manufacturing sector experienced a slowdown in growth during October, with the headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) dipping to 51.6 from 53.3 in September, signaling a modest improvement in business conditions that was the least marked in five months.

While new orders continued to increase solidly amid faster growth of new export business, there were signs that inflation may have peaked, with both input costs and output prices rising at broadly similar rates to the previous month.

Central to the weaker improvement in operating conditions was a much slower rise in manufacturing output. Production increased at a marginal pace that was the weakest in the current 12-month sequence of expansion. Where output rose, panelists linked this to higher new orders. Some respondents mentioned signs of softer demand, the report noted.

New orders continued to rise solidly in October, albeit to a lesser extent than in September. New export order growth accelerated, meanwhile, and was the strongest in six months. With new business increasing at a solid pace and output rising only marginally, manufacturers used inventories to help fulfil orders. As a result, stocks of finished goods decreased for the fourth consecutive month.

Rising new orders resulted in a further accumulation of backlogs of work, the fourth in as many months. This was despite solid job creation during October. Employment has now risen in each of the past 19 months, with the latest increase only slightly weaker than September’s six-month high.

After having risen at the fastest pace in over six years in September, input costs increased sharply again in October and at a rate that was little-changed from the previous month. Where inflation was recorded, panelists often mentioned raw material shortages. Output price inflation was also broadly unchanged from the end of the third quarter as charges rose for the second month running.

As well as pushing up prices of inputs, supply shortages also resulted in longer suppliers’ delivery times in October. Flooding from storms also contributed to longer lead times as transport routes were affected.

Manufacturers increased their purchasing activity at a solid pace, albeit one that was weaker than in the previous month. Stocks of purchases rose only marginally, with the latest accumulation the weakest in the current 16-month sequence of increasing pre-production inventories.

“Vietnam’s manufacturing sector paused for breath in October, with output rising only marginally during the month,” said Mr. Andrew Harker, Associate Director at IHS Markit, which compiles the survey. “New order growth also slowed, but remained solid amid a faster increase in new export orders. There was further evidence of material shortages impacting on the sector, leading to higher input costs and delivery delays.”

The manufacturing sector has been a strong performer within Vietnam’s economy so far this year. Growth will therefore need to rebound from October’s slowdown over the remainder of 2017 to help the country meet the GDP growth target of 6.7 per cent. IHS Markit is currently forecasting growth of 6.5 per cent.

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