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Manufacturing PMI eases in July

Released at: 11:57, 01/08/2017

Manufacturing PMI eases in July

Photo: Viet Tuan (VET)

Manufacturing Purchasing Managers' Index slips to 51.7 in July from 52.5 in June.

by Linh San

The rate of improvement in Vietnam’s manufacturing sector moderated in July, with slower increases in both output and new orders recorded, according to the Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI).

The rate of new order growth remained solid, however, with firms seeing a pick-up in backlogs of work as a result. In turn, this led to a reduction in stocks of finished goods as inventories were used to help fulfil new orders.

Meanwhile, the rate of job creation was little changed from that seen in June. The rate of cost inflation eased to the weakest in over a year, while panelists lowered their output prices for the third month running.

The composite single figure indicator of manufacturing performance dipped to 51.7 in July, down from 52.5 in June. The reading represented a modest improvement in the health of the sector, and one that was weaker than registered at the end of the second quarter.

Both output and new orders increased at slower rates during July. The rise in production was the weakest in the current nine-month sequence of expansion. New orders have risen continuously since December 2015 and increased solidly in July. This was also the case with regard to new business from abroad.

Commenting on the PMI survey data, Mr. Andrew Harker from IHS Markit, which compiles the survey, said: “Output growth in the Vietnamese manufacturing sector was the weakest in nine months during July, continuing the recent trend of more moderate expansion relative to earlier in 2017. New order growth also slowed. It’s not all doom and gloom, however. The rate of expansion in new orders remained solid. Meanwhile, the fact that backlogs of work rose at the fastest pace in over six years and inventories of finished products fell, suggests that firms will be looking to increase their output in coming months. Recent price trends were also repeated in July. Cost inflation has eased sharply since March’s recent peak, and was the slowest in over a year. Meanwhile, firms lowered their output prices for the third month running.”

With new orders increasing to a greater extent than output, backlogs of work were accumulated and stocks of finished goods depleted. The rise in outstanding business was solid, and the strongest since April 2011. Meanwhile, the marginal decline in post-production stocks was the first in three months as firms used stocks to help fulfil orders.

Rises in new orders and higher production requirements led manufacturers to increase staffing levels, the 16th successive month in which this has been the case.

The rate of input cost inflation moderated and was the weakest since June 2016 as some panelists reported falling market prices. The latest rise in input prices was much slower than those seen in the first quarter of the year.

With cost pressures easing, manufacturers lowered their output prices again in July, the third successive month in which this has been the case. The rate of decline quickened slightly, but remained modest.

Reports of stock shortages at suppliers were a key factor behind a further lengthening of delivery times. That said, the rate of deterioration in vendor performance was marginal, and the least marked in the current six-month sequence of lengthening lead times.

Manufacturers upped their purchasing activity in July, but as with output and new orders, the rate of expansion weakened. The latest increase was the slowest in 17 months. Stocks of purchases rose slightly, with the rate of accumulation easing for the second month running.

Manufacturers remained confident that output will increase over the coming 12 months, thanks to predictions of higher new orders and planned expansions. Sentiment rose to a three-month high as close to 50 per cent of panelists predicted an increase in production.

Manufacturing operating conditions across ASEAN worsened at the start of the third quarter, according to the latest PMI survey data. The headline Nikkei ASEAN Manufacturing PMI slipped to 49.3 in July from 50.0 in June, marking the first deterioration in the health of the sector so far this year.

The Philippines and Vietnam remained the top two performers in July and were the only two countries to see manufacturing sector conditions improve. Even then, both countries saw the rate of improvement moderate since June.

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