PMI rises to 6-month high in October on new orders

by ALIFAH ZAINUDDIN/ pic credit:

THE softness in Malaysia’s industrial production persisted in October despite a six-month high in new orders and one year high in the output index.

Data released by IHS Markit Ltd last Friday showed that IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose to 49.3 in October from 47.9 in September, reviving to sit broadly in line with its historical average.

At current levels, the PMI is broadly indicative of annual GDP growth of over 5%.

IHS Markit chief business economist Chris Williamson (picture) said the welcome signs of the manufacturing sector turning a corner started to appear last month, hinting that the pace of economic growth could accelerate in the fourth quarter (4Q).

He said the PMI’s main gauge of production growth has risen to its highest for a year, broadly indicative of the economy growing at an annual rate in excess of 5%.

“Production is being buoyed by improved domestic demand in particular, but external conditions remain challenging, dampening export growth once again and raising concerns about how much further momentum can continue to build in the absence of improved global economic conditions.

“It, therefore, remains too early to say manufacturing has turned a corner, but we are especially encouraged by producers having become more optimistic about the outlook, which is feeding through to welcome news of improved employment,” Williamson noted in a statement.

The healthier business environment was driven by a rise in the survey’s gauge of production volumes to a 12-month high.

PMI data indicated a notable step up in the orderbook trend during October, with the respective index rising to a six-month peak.

Survey respondents linked improved demand to new product launches and stronger new work inflows from existing clients.

The report stated that external conditions became more challenging at the start of 4Q, causing export orders to decline for a second successive month.

Anecdotal evidence highlighted China and Europe as two key sources of weak demand.

Encouraged by a healthier underlying business environment, the outlook strengthened in October, with firms on balance projecting growth in output over the next 12 months.

The improved outlook also led firms to increase their workforces in October. The rate of job creation was the strongest since April.

Greater staffing levels also coincided with evidence of capacity pressures building, as backlogs of work index rose to a 14-month high.

Upward trends in other forward-looking indicators were also seen at the start of 4Q, with survey data for input purchasing, input stocks and finished goods inventories all moving in a positive direction, in line or above long-run averages.

The report also highlighted a first month-on-month decline in input costs since March during October. Deflation reportedly stemmed from discounts from suppliers and lower commodity prices.

In turn, Malaysian manufacturers reduced their output charges to the fastest extent since January 2015 in order to gain a competitive edge.

This comes after financial data revealed money supply, M3, growth eased to a 33-month low as loan growth soften in September, as banks withdrew credit from the economy.

There was weaker credit growth in the transport, communications and storage sectors offset by growth in the utilities sectors.