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Vietnam Today

October PMI: Production down for second month running

Released at: 16:45, 01/11/2019

October PMI: Production down for second month running

Photo: Viet Tuan

Business conditions unchanged in October from September, according to latest report from IHS Markit.

by Minh Do

The Vietnam Manufacturing Purchasing Managers’ Index™ posted in line with the 50.0 no-change mark in October, down from 50.5 in September, when it was also down. Weaknesses in October were mainly centered on intermediate goods firms.

Business conditions in the manufacturing sector changed in October as new order growth slowed and back-to-back declines in output were seen for the first time since the third quarter of 2013. Employment also decreased during the month.

On the price front, the rate of input cost inflation accelerated and firms raised their charges for the first time in almost a year in response.

“The soft patch in the manufacturing sector continued in October, with firms seemingly cautious regarding output, employment, and purchasing given signs of weaker new order growth and global demand weakness,” said Mr. Andrew Harker, Associate Director at IHS Markit, which compiles the PMI. “It is important to note, however, that the historical relationship between the PMI and official data suggests that even a reading around the 50 mark translates into solid production growth in the official numbers. What we are likely seeing at present, therefore, is more of a growth slowdown than anything more concerning.”

While new order volumes continued to rise, the rate of growth was only marginal, having slowed for the third month in a row to the weakest in the current sequence of expansion, which began in December 2015. Some panelists indicated that customers had looked to reduce the size of their orders.

A similar pattern was seen with regards to new export orders, with the rate of expansion softening to a slight pace.

Signs of softer demand conditions led manufacturers to reduce their output for the second month running in October. That said, the rate of contraction was only marginal and broadly in line with that seen in September.

Firms also scaled back their staffing levels for the second month running. Though modest, the rate of job shedding was the joint-sharpest since March 2015. Reduced operating capacity meant that backlogs of work increased for the fourth time in the past five months.

Purchasing activity was unchanged in October, thereby ending a 46-month sequence of expansion. Some panelists raised purchasing in line with higher new orders, but others cut input buying amid lower output requirements.

There were some reports of issues with the supply of raw materials in October, leading to higher input prices and longer supplier delivery times. The rate of input cost inflation accelerated to a five-month high, but remained below the series average. In response to a larger rise in input prices, firms increased their output charges for the first time in eleven months.

The rate of output price inflation was only marginal, however, as fragile customer demand restricted pricing power.

Falling output impacted on inventory holdings in October. The reduced need for inputs in the production process led to a rise in stocks of purchases. Meanwhile, lower output meant that stocks of finished goods were depleted, following a rise in September. Moreover, the rate of decline was the fastest since March 2016. Business confidence rebounded from the 13-month low seen in September and was back to the level registered in August. Firms were confident of a rise in output over the coming year, with positive sentiment often linked to expected market expansion.

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