PMI Surges Above 50 Mark, Achieving Six-Month High

PMI Surges Above 50 Mark, Achieving Six-Month High

Vietnam’s manufacturing sector experienced a return to growth in August, supported by signs of recovery in demand. The S&P Global Vietnam Manufacturing Purchasing Managers’ Index (PMI) crossed the 50.0 mark for the first time in six months, reaching 50.5. This indicates a marginal improvement in business conditions within the sector compared to July’s reading of 48.7.

New orders and production both increased, leading firms to expand their purchasing activity. However, employment continued to decline slightly as companies remained cautious about hiring due to the fragile demand situation. Input costs rose for the first time in four months, while selling prices also saw inflation for the first time since March.

The slight recovery in the sector reflects tentative signs of improving demand. Manufacturers reported an increase in new orders after six months of decline, and new export business also saw growth following a five-month period of contraction. However, the growth rates were modest, with reports of ongoing demand fragility.

Manufacturing production rebounded in August after five consecutive months of decline, although the rate of increase was marginal. The investment goods category experienced the most significant growth in output and new orders. Purchasing activity expanded solidly, with stocks of purchases increasing for the second consecutive month.

Employment reduction slowed down, indicating a marginal pace of job cuts. Backlogs of work decreased for the eighth consecutive month, signaling spare capacity in the sector. Firms also reported a buildup of finished goods stocks for the second month in a row, potentially due to weak demand leading to unsold products.

Input prices saw a solid increase in August, ending a three-month period of decline. Higher oil prices and increased food prices were cited as contributing factors. Selling prices also saw a slight increase, marking the first growth since March.

Supplier delivery times shortened for the eighth consecutive month, as suppliers maintained sufficient stocks to fulfill orders despite increased demand for inputs. Business confidence strengthened due to tentative improvements in market demand, although concerns about the strength of demand persisted. Optimism for future production in the next 12 months was the highest in five months but remained below the series average.

Andrew Harker, economics director at S&P Global Market Intelligence, noted that the latest PMI data paints a more encouraging picture of the sector’s health compared to previous months, with output, new orders, exports, and purchasing all showing signs of growth. However, improvements are still relatively subdued due to the fragile demand conditions, suggesting that it may be too early to declare a full recovery in the sector. Additionally, the survey highlighted the end of falling prices, with both input costs and selling charges rising in August, often attributed to higher oil prices.

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