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PMI at 53.4 in January

Released at: 11:43, 01/02/2018

PMI at 53.4 in January

Illustrative image (Source: vietnambiz.vn)

January indicator from IHS Markit up from 52.5 in December.

by Quang Huy

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) - a composite single-figure indicator of manufacturing performance - posted 53.4 in January, up from 52.5 in December and signaling a solid monthly improvement in the health of the sector.

The latest strengthening of business conditions was the 26th in successive survey periods and the most marked in nine months.

Vietnam’s manufacturing sector made a strong start to 2018, registering sharper increases in output, new orders, and employment. This all contributed to the most marked improvement in operating conditions since April 2017.

There was again evidence of pressure on supply chains, with delivery times lengthening and the rate of input cost inflation among the strongest since the survey began in early 2011. Output prices also increased at a faster pace as firms responded to rising input costs and higher client demand.

New orders continued to rise at the start of the year amid improving client demand. Moreover, the rate of expansion accelerated to a four-month high. Positive demand conditions were also highlighted in export markets, supporting a further solid increase in new business from abroad.

Rising new business supported a second successive monthly expansion of manufacturing output.

Firms made further efforts to expand their operating capacity in January, taking on extra staff at a sharp pace. In fact, the rate of job creation was at a 16-month high. Extra capacity enabled manufacturers to reduce backlogs of work despite rising new orders. Outstanding business decreased for the third month running.

Production growth was also supported by a marked increase in purchasing activity; the fastest in 13 months. Meanwhile, strong demand for inputs and raw material shortages led to further delays in deliveries from suppliers. Vendor delivery times lengthened to the greatest extent since August 2014.

Raw material shortages also contributed to rising input costs. The rate of input price inflation accelerated and was one of the strongest in the series history. The pace at which output prices increased also quickened and was the strongest in almost a year. Panelists mentioned higher input costs and improved client demand.

A strong rise in purchasing activity resulted in a second successive monthly increase in pre-production inventories. That said, the rate of accumulation remained marginal. Stocks of finished goods decreased, meanwhile, as inventories were used to support sales.

Manufacturers in Vietnam generally expect client demand to increase further over the course of 2018, thereby supporting optimism towards output growth.

Sentiment was broadly in line with that seen in December. Increases in international investment and business expansion plans were also factors likely to result in output rising.

“Faster rises in output, new orders, and employment were recorded amid improving demand conditions,” said Mr. Andrew Harker, Associate Director at IHS Markit, which compiles the survey. “With the TPP also back on the agenda, there will be plenty of optimism that the sector will continue to grow as the year progresses. On a more cautionary note, inflationary pressures intensified, with input costs up at one of the sharpest rates in the survey’s history. This adds to evidence that strong growth globally is putting pressure on manufacturing supply chains and pushing up costs for raw materials.”

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