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Vietnam Today

September PMI down to ten-month low

Released at: 11:00, 01/10/2018

September PMI down to ten-month low

Photo: Duc Thanh

Slower rises in both output and new orders largely behind decline, while business confidence rebounds.

by Minh Do

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ IndexTM (PMI®) - a composite single-figure indicator of manufacturing performance - dropped to 51.5 in September from 53.7 in August. The rate of improvement in the health of the sector has now eased for three successive months, with the latest strengthening of business conditions the weakest since last November. That said, operating conditions have now improved in each of the past 34 months.

“As was the case throughout the third quarter of the year, growth in Vietnam’s manufacturing sector moderated during September,” said Mr. Andrew Harker, Associate Director at HIS, which compiles the PMI. “While remaining positive overall, demand conditions are clearly less buoyant than they were during Q2. The rate of input cost inflation also continued to moderate, providing some room for firms to reduce selling prices in order to help secure new business. In fact, charges were lowered for the first time in over a year during September.”

The end of the third quarter of the year saw a further slowdown in growth momentum in the Vietnam’s manufacturing sector. Weaker increases in output, new orders, and employment were all recorded, while firms offered discounts to try and attract customers. They were able to do this thanks to a moderation in the rate of input cost inflation. On a positive note, business confidence rebounded from August’s low.

Central to the fall in the PMI in September were slower rises in both output and new orders. Manufacturing production rose at the weakest pace since March, with growth easing for the third month running. This was also the case with regard to new business, which nonetheless continued to rise solidly due to improving customer demand. Meanwhile, new export orders rose modestly, to the slowest extent in 16 months.

Slower new order growth meant that firms were able to work through backlogs of work in September. Outstanding business decreased for the fourth month running.

Manufacturing employment increased in the month, as has been the case throughout the past two and a half years. That said, the rate of job creation was slight, easing to its weakest since August 2017.

On a more positive note, business confidence rebounded from the record low seen in August. Company plans and expected growth in new orders supported optimism that output will increase over the coming year.

Although input prices continued to rise at the end of the third quarter, the rate of inflation slowed and was weaker than the series average. Weaker cost inflation enabled firms to reduce their output prices, ending a one-year period of increases. According to respondents, efforts to secure sales amid competitive market conditions were behind the fall in charges.

Manufacturers continued to raise purchasing activity in line with higher new orders, but the rate of expansion softened to a six-month low. The rate of accumulation in stocks of purchases also slowed, and was only fractional. Meanwhile, stocks of finished goods decreased for the first time in three months.

Finally, suppliers’ delivery times were unchanged in September, following a slight lengthening in the previous month. Some panelists saw lead times improve due to requests to suppliers for faster deliveries. Conversely, other firms indicated that raw material shortages led to delivery delays.

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