Slight rise in Oct PMI, but it's too early to cheer

Singapore

MIMICKING dismal purchasing managers' indices (PMIs) across Asia, Singapore's October PMI remained in contraction mode - although it rose 0.3 point to 48.9.

While economists were heartened by the slight uptick in the overall PMI, a barometer of industrial activity, they mostly cautioned against any optimism that the slump in manufacturing is over.

OCBC economist Selena Ling told The Business Times: "It's not a convincing turnaround story yet, because the improvement is so marginal and it's still a sub-50 reading. But the slight increase also means it's not a free-fall situation, which could suggest some stabilisation in demand."

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

At 48.9, Singapore's headline PMI was exactly in line with what private-sector economists polled by Bloomberg had been expecting; it also marked the fourth month of contraction in the manufacturing economy.

Said DBS economist Irvin Seah: "I think this marginal improvement is largely driven by the year-end festive season demand - and even then, it's weaker than in the previous year. So it's too early for us to celebrate, or to make the call that the manufacturing sector is out of the woods.

"We're still stuck in the doldrums, and the sluggish outlook will persist at least until the middle of next year, at best."

The weak performance parallels the headline PMIs of China, Indonesia, and Taiwan, where overall readings improved, but remained below the 50-point mark dividing growth from contraction.

The Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the index every month from a survey of more than 150 manufacturing firms' purchasing managers, attributed the contraction in the overall PMI to another month of declines in new orders, new export orders and production output.

SIPMM added: "Inventory recorded its first-time contraction after having expanded over five consecutive months."

Still, Singapore's sub-index for new orders rose 0.4 point to 48.7, and that for new export orders rose 0.6 point to 48.8; this bucked the trend of contracting and weaker new orders seen in Indonesia, Korea, and Malaysia.

The electronics PMI also stayed below the 50-point mark in October, with a marginal 0.1 point rise to 48.6.

This was lower than the market's forecast of 49.0.

The contractionary reading was due to declines in new orders from domestic and overseas markets, as well as production output and inventory.

Said OCBC's Ms Ling: "The absolute domestic manufacturing and electronics PMI levels are still a far cry from the 51.9 and 52.5 seen a year ago. Moreover, the deterioration in the import, input prices, employment and supplier deliveries indices suggest that the recent uptick could be more seasonal and may not last into Q1 2016."

Still, CIMB Private Banking economist Song Seng Wun stressed that October's PMI rise - modest though it may be - should still be taken as an encouraging sign that "conditions aren't deteriorating, even in a contractionary environment".

He and other economists are looking to Wednesday's release of the Nikkei Singapore PMI for an indication of conditions across the broader economy.

The economy-wide indicator of activity weights each sector for its contribution to the gross domestic product (GDP). Sectors reflected include manufacturing, services, construction, transportation & storage and retail.