You are here

Whole-economy PMI shows August business conditions up slightly

Friday, September 4, 2015 - 05:50
SSM421.jpg
The Singapore stock market minutes before closing time as seen on the video screens at One Raffles Quay on 10 October 2008.

Singapore

SINGAPORE businesses posted only a marginal improvement in operating conditions in August, as the rate of output growth dipped to a four-month low, according to the Nikkei Singapore purchasing managers' index (PMI) released on Thursday.

The headline PMI was at 50.8 in August - above the 50-point mark which signals an improvement in conditions over the previous month, but below July's 51.3 reading.

Given the lower figure, it would be unwise to extrapolate a positive reading from last month's data, said Mizuho economist Vishnu Varathan.

"At the end of the day, the fact of the matter is that rising interest rates, signs of a further global demand deficit, and the potential for financial shocks emanating from China relegate a 'positive' read to hollow consolation, if not misguided optimism," Mr Varathan told The Business Times.

The Nikkei Singapore PMI is an economy-wide indicator of activity, with each sector weighted for its contribution to gross domestic product (GDP). Sectors reflected include manufacturing, services, construction, transportation & storage, and retail.

In contrast, the Singapore Institute of Purchasing & Materials Management's (SIPMM) PMI covers only the manufacturing sector. On Wednesday, SIPMM said its manufacturing PMI sank 0.4 point to 49.3, as new orders, new export orders, production output as well as input prices showed a further contraction.

As such, CIMB Private Banking economist Song Seng Wun stressed that August's expansionary PMI reading should be attributed to services firms, instead of the manufacturing sector.

"(The whole-economy PMI) was likely supported by services-producing industries. While the shortened working month caused by SG50 festivities may have affected some factory activities, some businesses may have gotten an extra lift from the SG50 celebrations," said Mr Song.

Mr Varathan agreed, adding that "it is the well-worn story of the services sector offset". He suspects discounts and promotional activities compensated for weak demand, and helped to buoy August's overall PMI reading.

Markit, the financial information services provider which compiles the Nikkei Singapore PMI, said that output growth eased to a four-month low - although it "remained solid overall". The higher output was attributed to new product developments and improving client demand.

August's data also suggested that firms benefited from an upturn in foreign demand - with new export orders rising at the fastest rate in 2015 so far.

OCBC economist Selena Ling said that the uptick in foreign demand was notable, since it suggests that "it's not all doom and gloom for external demand". "Maybe the stimulative policy efforts in China, amongst others, are finally bearing fruit?," she mused.

Still, Annabel Fiddes, an economist at Markit, said: "Although new business from abroad improved, overall demand appears relatively muted as total new orders were unchanged from the previous month.

"Unless demand conditions start to improve, it's likely that output growth will slow further which could translate into more bad news for the labour market. Furthermore, weaker global growth amid fears of a slowdown in China adds to demand-side concerns, and could dampen the performance of the economy in upcoming months."

Powered by GET.comGetCom