Manufacturing growth remains elevated in August

The S&P Global Vietnam Manufacturing Purchasing Managers' Index™ (PMI®) posted 52.4 points in August, down from 54.7 points in July but still signalling a solid monthly improvement in business conditions midway through the third quarter. Operating conditions have now strengthened in each of the past five months.

The improvement in the health of the manufacturing sector reflected further rapid increases in output and new orders, with the respective rates of expansion remaining sharp despite easing from the particularly elevated rates seen in June and July.

Improvements in customer demand resulted in growth of new orders, with firms raising production accordingly. In some cases, relative stability of prices helped firms to secure new business, while there were also mentions of improving international demand. New export orders rose for the fifth month running.

The relatively stable price situation was also signalled by data on input costs and selling prices. While both continued to increase, rates of inflation slowed markedly from July to the weakest in four months.

Some manufacturers reported higher raw material prices, but the rate of inflation slowed amid signs of competitive pressures. Meanwhile, lower oil prices acted to reduce transportation costs in some cases.

Strong growth of new orders and softer cost pressures led manufacturers to increase purchasing activity sharply during August. Moreover, the rate of growth quickened for the fourth month running to the fastest since May 2022.

Purchased inputs were often used directly to support production, meaning that stocks of purchases continued to fall. Stocks of finished goods were also down as inventories of completed products were delivered to customers to satisfy order requirements.

In contrast to the picture regarding purchasing activity, manufacturers recorded a drop in employment for the first time in three months amid resignations and the ending of temporary contracts.

The drop in workforce numbers at a time of rising new business meant that backlogs of work continued to accumulate in August. Outstanding business increased for the third month running, with the rate of expansion unchanged since July.

Manufacturers remained optimistic that output will increase over the coming year, based on expectations of further improvements in customer demand and new orders. Sentiment dropped for the second month running, however, and was the lowest since January.

Andrew Harker, economics director at S&P Global Market Intelligence, said, “As expected, the Vietnamese manufacturing sector saw a slowdown in growth of output and new orders from the particularly elevated rates seen in June and July. Those increases were always going to be hard to sustain and rates of expansion remained marked, so there is little cause for concern on that front. One issue firms are facing is a drop in employment, which is making completing projects more difficult and adding to outstanding business. We will hopefully see a return to job creation in the coming months."

"The news was better in terms of inflation, with both input costs and output prices rising at much weaker rates in August. In fact, this was reportedly a factor contributing to sustained new order growth. Overall, the sector continues to enjoy a strong second half of the year so far, with plenty of work to get through in the months ahead," he added.

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