Silver lining for S'pore manufacturing?

Singapore

ANOTHER month, another negative reading - but this time with a slight glimmer of hope for Singapore's manufacturing sector, if November's Purchasing Managers' Index (PMI) is to be believed.

Although the PMI stayed in contraction mode for the fifth month in November, it improved 0.3 point to 49.2 - marking a slightly higher reading than private-sector economists had forecast. Those polled by Bloomberg had been expecting the PMI to rise just 0.1 point to 49.0.

A reading above 50 denotes growth, while one under 50 points to a contraction in the manufacturing sector.

This prompted some tentative optimism from economists like DBS's Irvin Seah and Stanchart's Jeff Ng, who told The Business Times that November's PMI figure - while still contractionary - offers silver linings amid an otherwise-dreary manufacturing outlook.

Said Mr Seah: "There could be light beyond the PMI gloom - but the key phrase is 'could be' ... This is the second consecutive month of improvement, from the bottom registered in September. Though it may be premature to call this a trend, at least the numbers are heading higher. Moreover, the sub-indices are supporting that hypothesis too."

According to the Singapore Institute of Purchasing & Materials Management (SIPMM), which released the November reading on Wednesday, new orders were up 0.5 point to 49.2, production 0.5 point to 49.1, inventory 0.2 point to 49.8, and employment 0.5 point to 48.7. They continued to stay in contraction mode, however.

Mr Seah noted as well that while stocks of finished goods remained above 50 at 51.3, this eased by 0.3 point. "This suggests a minor destocking in process, which may prompt an upward adjustment in production in the subsequent one to two months," said Mr Seah.

Stanchart's Mr Ng agreed, highlighting the narrowing gap between new domestic and external orders, versus inventories. This, he said, should help production to rebound modestly over the next few months.

Added Mr Ng: "There are some signs that the worst may be over. Input prices are trending down, and orders and production are also improving from the lows in Q3 2015."

As for the electronics PMI, it remained below the 50-point mark in November as well, with a 0.4 point rise to 49.0. This was higher than the market's forecast of 48.8, and showed improvements in new orders (up 0.7 point to 48.9), new export orders (up 0.4 point to 48.2), and production (up 0.6 point to 49.5).

SIPMM compiles the monthly index from a survey of more than 150 manufacturing firms' purchasing managers. Despite the more hopeful tone struck by other private-sector economists, CIMB Private Banking's Song Seng Wun still warned that the latest reading is "no fun at all".

"The fourth quarter is typically the busiest part of the year due to year-end festive demand. But it doesn't look like this is happening, going by regional October/November PMI readings and actual October manufacturing performances. This doesn't augur well for factory activities in Q1 2016," said Mr Song.

Indeed, even the optimistic economists were quick to curb their enthusiasm, and emphasised the still-dicey outlook for the manufacturing sector.

Stressing that downside risks still persist, Mr Ng cited China's dismal manufacturing performance of late, and said that this will inevitably weigh on external demand for Singapore.

DBS's Mr Seah also cautioned that November's improvement could simply be due to manufacturers front-loading production in 2015, ahead of the Chinese New Year lull period in early February. "Fingers crossed that this truly marks a trend and that the worst is behind us," said Mr Seah.