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September PMI down to 49.5

Released at: 11:37, 02/10/2015

September PMI down to 49.5

Fall signals declining business conditions for first time in 25 months.

by Thu Hoang

The Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, dropped below the 50.0 no-change mark in September, posting 49.5, following a reading of 51.3 in August. This marginal deterioration brought an end to a two-year sequence in which the health of the sector had improved continuously, according to the latest report from Nikkei and Markit Economics.

“After seeing growth slow in recent months, the situation took a turn for the worse in September as the Vietnamese manufacturing sector posted contractions in both new orders and production,” said Mr. Andrew Harker from Markit.

New orders decreased for the first time in just over a year in September amid deteriorating market conditions. However, the rate of decline was only slight. Meanwhile, new export orders fell for the fourth successive month, and at the second-fastest pace in the series’ history. Some panelists mentioned particular demand weakness from other countries in the region.

Falling new orders contributed to a slight reduction in manufacturing output, the first in two years. The completion of projects was also mentioned as a factor leading production to decrease, according to the report.

“Lower new business was also reportedly behind a solid fall in backlogs of work, the fastest in six months,” the report stated.

Despite declines in output and new work, firms continued to raise employment during September. That said, the rate of job creation was modest and the slowest in three months.

The latest data pointed to a sharp and accelerated decline in input prices in the sector, largely due to falling fuel costs that outweighed the inflationary impact of a weaker currency. The reduction in input prices was the joint second-fastest in the series’ history, behind only that seen in January.

With input costs decreasing sharply, manufacturers continued to lower their output prices. Moreover, the rate of decline quickened for the third month in a row, to the sharpest since July 2012.

Vietnamese manufacturers lowered their purchasing activity for the first time in 25 months amid reduced production requirements. “This enabled suppliers to improve their delivery times again during September, the second successive month in which lead times have shortened,” the report said.

Reduced purchasing activity contributed to a third consecutive monthly decline in stocks of purchases, and the most marked since March. On the other hand, stocks of finished goods increased, reflective of a drop in sales. The rise was the first in four months, according to the report.

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