Manufacturing News 08/11/2023, 01:32

PMI in October continued to be below the average threshold, new orders increased weakly

The Purchasing Managers' Index (PMI) of Vietnam's manufacturing industry remained below the 50-point threshold in October, falling to 49.6 points compared to 49.7 points in September. This result shows the health of the manufacturing industry declined for the second consecutive month.

PMI in October continued to be below the average threshold, new orders increased weakly

On the morning of November 1st, S&P Global announced the Purchasing Managers' Index (PMI) report for the Vietnamese manufacturing industry in October 2023. Among them, there are 3 outstanding highlights: output decreased for the second consecutive month; steady employment; Input costs rose to an 8-month high.

The report stated that overall business conditions in Vietnam's manufacturing sector deteriorated slightly in October as companies continued to reduce output despite a slight increase in new orders. On a more positive note, employment has stabilized after a period of employment decline, and companies continue to increase purchasing activity with optimism about the outlook for the year ahead.

“The combination of rising oil prices and a weak currency has caused inflation to increase for the second month in a row, and output prices have increased accordingly,” the report emphasized.

The focus of this reduction in business conditions is that output continues to decline, and this is the second decline in two months. This decrease was only a slight decrease as some companies increased production in line with the increase in the number of new orders; however, companies were able to meet customer requirements without increasing production.

The number of new orders increased for the third consecutive month as there were signs of improving customer demand. However, the growth rate is only mild and is the weakest in the current bullish period. Incomplete statistics show that customers are still hesitant to commit to new orders.

The number of new export orders also increased slowly during the month but was still significantly higher than the total number of new orders.

Employment was virtually flat at the start of the last quarter of the year, thus ending seven months of employment decline. Members of the survey group that increased employment numbers said the reason for doing so was to meet the increase in new orders while remaining optimistic about the outlook for output a year ahead.

Stability of employment and underutilized production capacity allowed manufacturers to significantly reduce backlogs in October. Furthermore, the pace of decline was the sharpest since June 2021.

Inflationary pressure continued to increase in the first and last quarter of the year, as both input costs and output prices increased faster. The inflation rate has reached an eight-month high.

The impact of rising oil prices is widely believed to have increased input costs, with fuel and plastics among the commodities whose prices are affected by rising oil costs. Meanwhile, the depreciation of the dong against the US dollar also creates additional pressure on costs. To compensate, companies have sharply increased selling prices.

Purchasing activity continued to increase, and this was the third consecutive increase as companies worked to increase their inventories of input goods to meet expected increases in production demand. However, these efforts often prove fruitless as purchasing inventories continue to decline.

Finished goods inventories also fell as manufacturers used inventory to fill new orders instead of increasing production. The second straight increase in post-manufacturing inventories was slight, but the most significant since January.

Finally, the improvement in supplier delivery times seen earlier in the year continued in October amid reports of excess merchant capacity. However, the shortening of delivery times is the least significant since April.

Commenting on the survey results, Mr. Andrew Harker, Director of Economics at S&P Global Market, said that PMI index data at the beginning of the last quarter of the year painted a similar picture to the end of the third quarter. The number of new orders continues to increase, but the growth rate is only slight and not enough to encourage companies to increase output. Instead, manufacturers used finished goods inventories to meet demand.

There was some more positive news on the jobs front as seven months of job contraction came to an end. This, combined with increased purchasing activity and optimism, suggests companies are becoming more confident that the recent improvement in demand will be sustained in the coming months.

Another point of concern in October was that inflationary pressures continued to increase, as rising oil prices and currency depreciation increased input costs.

Vneconomy/ Translator: Ngoc Mai
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