March output index up but still mired in contractionary mode

Singapore

A LEADING indicator for factory output rose in March, but the manufacturing sector is likely to stay stuck in a slump for at least some months to come.

The Purchasing Managers' Index (PMI) reading was 49.4 for March, up 0.9 percentage point from February when the reading - 48.5 - was the lowest in three years.

Still, March's PMI indicated that the manufacturing sector has stayed below the threshold 50 reading for a ninth straight month. An above-50 reading suggests the sector is expanding, while an under-50 reading suggests it's declining.

The Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the index from a poll of over 150 purchasing executives, says the higher PMI reading for March reflected "better readings across major indicators, although most indicators are still in contractionary mode".

"New orders and new export orders were higher over the previous month and factory output recorded improved readings," says SIPMM in its monthly report released on Monday.

March's PMI readings also showed input prices and factory jobs looked better than they did in February.

Commenting on last month's PMI readings, OCBC Bank chief economist Selena Ling said: "This is the strongest pick-up from February to March since 2013, albeit the March 2016 reading is still below the 3-year average of 50.3."

Both Ms Ling and Song Seng Wun of CIMB Private Banking noted that Singapore's "less bad" PMI reading last month was in line with global and regional PMI readings.

"With the exception of Japan where the strong yen has impacted corporates, we see across-the-board rebound in March manufacturing PMI from US, Europe and Asia (excluding Japan) as encouraging, although overall business conditions in the global economy remained subdued."

Mr Song thinks that for Asian factories, the widespread improvement in March's readings for various components - from orders, output to employment - had much to do with factories being busier after the holiday-shortened month of February.

"So we could say that a busier China had contributed to the global rebound in manufacturing activities in March," he said.

Yet the index for new orders for factory output in Singapore remained in contraction territory, leading Ms Ling to conclude that "a full-fledged domestic recovery is still some way off".

The PMI reading for the local electronics sector rose 0.8 percentage point from February to 49.0 in March, still below the threshold 50 reading for the ninth consecutive month. Readings for new electronics orders and factory output improved.

Employment continued to shrink but at a slower pace. Despite the better showing, SIPMM noted that employment in the electronics sector stayed down for an 11th straight month as "most electronics manufacturers struggled to maintain a lean and productive workforce during the period of an uncertain global business environment".

Electronics inventory also posted slower growth because of slower supplier deliveries.

The Ministry of Trade and Industry has cautioned that the manufacturing sector will have a tough 2016.

"Even though global growth is expected to improve, the continued slowdown in China, the services-driven nature of growth in the United States, as well as the trends of in-sourcing in China and the US, may mean that external demand for our exporters may not see a significant boost this year," MTI permanent secretary Ow Foong Pheng said recently.