Manufacturing stagnates in December

At 49.3 in December, down from 50.5 in November, the seasonally adjusted HSBC Vietnam Manufacturing Purchasing Managers’ Index (PMI) posted below the neutral 50.0 mark for the eighth time in the past nine months.

The latest deterioration in operating conditions reflects reduced new order inflows, disinvestment of inventory holdings and stagnating production volumes.

The average PMI reading in 2012’s fourth quarter was 49.5, up from 46.9 in the third quarter and the highest outcome since 2011’s third quarter.

After rising moderately in November 2012, the level of manufacturing output was broadly unchanged during last month. Companies indicated that where volumes had been eaten into, this had been through the depletion of work backlogs.

Market conditions remained subdued overall, reflected by reductions in domestic and new export orders. The level of new export business contracted for the eighth month running and to a greater extent than flagged in November.

The muted performance of the manufacturing sector has not yet filtered through to the labour market, as highlighted by job creation being recorded at manufacturers for the third successive month in December 2012.

Although the increased rate of payroll numbers was again only mild, it was nonetheless still one of the fastest since the survey began in April, 2011. Higher employment – alongside efforts to sustain production volumes – was also a prime factor underlying the substantial drop in backlogs of work.

Input buying volumes were unchanged compared to November, as lower demand discouraged companies from raw material purchasing. Meanwhile, a preference for reduced inventory holdings led to lower levels of pre- and post-production stocks.

The average input prices declined for the first time in five months in December, although the rate of reduction was only slight. Lower purchasing costs were mainly attributed to weak demand for raw materials, especially in the domestic market.

December saw average output prices decline for the eighth consecutive month, with the decreased rate broadly in line with the average for this period. Lower factory gate prices were attributed to weak demand and strong competition.

HSBC Asia economist Trinh Nguyen said: “The economy is stabilising, as indicated by the output level. However, the economic recovery process is still in its fragile state as external demand remains weak and consumer confidence is subdued. A third expansion of employment shows the resilience of the economy. Still, while things will likely improve marginally next year, significant changes to consumption behaviour are not expected unless meaningful reforms take place”.