S'pore's May factory PMI dims hopes for broader upturn

Singapore

CONDITIONS in Singapore's manufacturing sector slumped again in May after recent strong sectoral data.

This dimmed economists' hopes of a broader upturn, as they await an economy-wide indicator that will be released on Friday.

The headline purchasing managers' index (PMI) for manufacturing in May was at 49.8, said the Singapore Institute of Purchasing & Materials Management (SIPMM), which compiles the data, in a release on Thursday.

A reading above 50 signals expanding activity from the previous month, while anything below indicates contraction.

May's PMI thus puts the sector in its 11th straight month of contraction. April's PMI was also at 49.8.

Thursday's release comes a day before Friday's Nikkei PMI, which captures economy-wide activity. April's Nikkei reading had registered its first contraction in a year with 49.4.

UOB economist Francis Tan had this to say about Thursday's SIPMM data: "It's like manufacturing's stuck in a lukewarm kind of a situation - not too hot or not too cold . . . we'll have to wait for the Nikkei PMI, which makes us kind of nervous."

The nervousness partially stems from the diverging trends seen in the set of manufacturing data released by SIPMM. This made it more difficult for economists to predict whether manufacturing is really on the upturn, given recent set of optimistic data.

SIPMM itself had said that manufacturing PMI's unchanged reading in May is due to "mixed indicator trends, with new orders and new exports posting marginal declines but offset by marginal increase in factory output".

The production index in May posted a marginal expansion reading for the first time, after 10 months of contraction. It was at 50.1 in May, 0.2 higher than in April.

However, new orders and new export orders continued to fall in May. New orders was at 49.7, down 0.1 from April. New export orders was at 49.4, a drop of 0.2 from April.

The muted reaction to May's PMI stands in contrast to the surprise economists had after recent releases of other manufacturing-related data.

Estimates for April's industrial production showed that total factory output was up by 2.9 per cent from a year ago - its best performance in 20 months.

Gross domestic product (GDP) data for the first quarter of this year saw manufacturing shrink by one per cent on year, better than the flash estimate of a 2 per cent decline. The sector contributes to about a fifth of Singapore's economy.

The factory output and GDP numbers had some economists seeing a bottoming-out, if not upturn, for manufacturing.

Mr Tan, who saw "green shoots" for manufacturing, said that Thurs-day's PMI might mean that manufacturing might not be as resilient as the earlier data showed.

"It's kind of scary because business owners and policymakers don't know how to react going forward," he said.

The external outlook for manufacturing did not bode well, either.

Singapore's manufacturing has close links with regional ones, and the PMIs coming out from these economies give not much reason to cheer, too, with Frederic Neumann, co-head of Asia Economics Research at HSBC, calling the disappointing PMIs "damp and soggy".

The subdued domestic and external outlook for Singapore's manufacturing prompted some economists to look towards the next set of data that may give a snapshot of how Singa-pore's economy may fare in Q2 2016.

The Nikkei PMI for May, to be released at 11am on Friday, will capture economic activity across different sectors, including manufacturing, services, retail and transportation.

This reading will come after April's contraction of 49.4. It will also follow recent GDP results showing that the services sector, which forms two-thirds of Singapore's economy, had disappointed with Q1's 1.4 per cent year-on-year growth.

Should the Nikkei PMI for May disappoint again, it "could pose a bigger downside risk to our 1.8 per cent full-year GDP growth forecast than manufacturing weakness which has been well-telegraphed", said Selena Ling from OCBC.