Manufacturing output down on tepid demand


The manufacturing sector registered further contractions in output and new orders in July for the third consecutive month in the face of tepid demand due to lower order volumes, particularly from within the domestic economy.

According to the latest Purchasing Managers’ Index (PMI) survey, the seasonally adjusted output index posted a higher value than June, indicating a reduced rate of contraction.

“Manufacturing production declined, while the degree to which output fell was weaker than in June due to falling levels of new orders, linked to underwhelming market demand which was the primary factor behind the deterioration in sales,” it said.

The report noted weakness in the domestic market was a key reason for reduced overall new orders, while foreign sales were broadly unchanged in July.

On a regional level, the survey highlighted that the headline Nikkei Asean Manufacturing PMI slipped to 49.3 in July from 50 in June, marking the first deterioration in the health of the sector so far this year.

Despite the slower rate of decline, it said persistent weaknesses in several key indices meant that deteriorating operating conditions last month were even worse than the first-half of the year, on average.

To recall, Malaysia’s PMI only breached the 50-level in April this year.

The Nikkei Malaysia Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to pur-chasing executives in over 450 industrial companies.

The report noted volume for new businesses in the manufacturing sector fell in July, as they have done almost every month for the last 21⁄2 years.

In terms of selling prices, upward pressure on manufacturers’ selling prices continued during July.

“Falling input price inflation was a key factor behind a fifth consecutive monthly slowdown in output price inflation,” it said.

Despite the contraction, manufacturers employed more people in anticipation of a production increase over the coming year, with current confidence on future output staying positive.

“However, companies retained some hope of an improvement in operating conditions over the medium-term, expecting growth to occur in the next 12 months,” said IHS Markit director Paul Smith in a statement yesterday.

“This helped to bolster employment, which subsequently rose marginally for the second time in the past three months,” Smith said.

The report said although work backlogs reduced for the third time in the past four months, the rate of contraction was the greatest recorded by the survey since data was first collected over five years ago.

“Input price inflation continued its recent descent from February’s survey high during July, falling for a fifth successive month to the lowest recorded by the survey since last October.”

Price pressures remain marked, with a weak exchange rate and rising raw material prices noted, it added.

The strong global demand for input was reflected by a further lengthening of delivery times over the month.

It said July’s survey data indicated that average charges rose modestly and at the weakest rate of the year so far.