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PMI to 51.5 in January

Released at: 11:10, 02/02/2016

PMI to 51.5 in January

Index up for the second month in a row.

by Thu Hoang

The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, ticked up to 51.5 in January from 51.3 in December.

The reading signaled a second consecutive monthly strengthening of business conditions, with the health of the sector improving at a slightly greater pace than seen at the end of 2015.

“The most pleasing aspect of the latest set of manufacturing PMI figures for Vietnam was a quickening in the rate of growth of new orders at the start of 2016, showing that local firms are still able to generate new business despite a challenging global environment,” said Mr. Andrew Harker from Markit, which compiles the survey.

While job creation remained weak, a build-up of outstanding business suggests that manufacturers might need to up their rate of hiring in coming months to keep on top of workloads.

“With the TPP set to be signed later this week, thereby kicking off the ratification stage, 2016 could lead to further positive developments in the Vietnamese economy following a solid start to the year,” Mr. Harker added.

New orders increased for the second successive month in January, and at a solid rate that was faster than recorded in December. Firms reported that rising client demand had been the main factor leading to new order growth. New export business also increased during the month, albeit at a weaker pace.

The rise in total new business contributed to a second increase in output in as many months, with the rate of expansion broadly in line with that seen in the previous month.

The acceleration in the pace of new order growth reportedly led to a build-up of backlogs of work in the sector - the first in eight months. “Although modest, the rate of accumulation was the sharpest since November 2014,” according to the report.

Input costs continued to fall in January, extending the current sequence of decline to seven months.

Moreover, the pace of reduction quickened from that seen in December, with panelists linking lower input prices to falling costs for commodities, including oil. In a number of cases declining input prices were passed on to clients, leading to a further decrease in output charges.

Rises in both employment and purchasing activity were linked to increased production requirements, according to the report. Job creation was recorded for the ninth time in the past ten months, although the rate of growth was only marginal. Meanwhile, input buying rose at a faster pace than in the previous month.

Higher purchasing activity led some firms to see a rise in stocks of inputs. However, this was cancelled out by the use of inputs in the production process, leaving pre-production inventories largely unchanged overall.

Difficulties for suppliers in securing goods and an increase in the number of deliveries contributed to longer lead times in the sector, with vendor performance deteriorating at a stronger rate.

“Finally, stocks of finished goods decreased for the first time since August 2015 amid higher sales and the delivery of products to clients,” the report added.

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