Dip in Nov PMI masks continued electronics strength

[SINGAPORE] Singapore's latest purchasing managers' index (PMI) reflects a mixed manufacturing performance in November.

While the overall PMI reading fell short of expectations - dipping 0.4 to expand at 50.8 last month - the electronics index continued to strengthen, pointing to a surer-footed recovery for the sector.

The electronics PMI - which expanded further to 51.2 from 51 in October - gels well with recent economic indicators; just a week ago, another double- digit jump in electronics output boosted Singapore's manufacturing performance in October.

Economists BT spoke to say the collective data underscores how the electronics recovery is "still intact".

Noting how new export orders for electronics continued to expand 0.4 to 52.6, OCBC economist Selena Ling said: "It is also encouraging that at the global level, the semiconductor book-to-bill ratio also resurfaced above the key 1 threshold to 1.05 in October, after two months of malaise. This probably suggests that the electronics improvement will be sustained into Q1 2014 amid improved global demand conditions."

The electronics inventory index spiked up 7 points to 53.4 in November, which prompted CIMB economist Song Seng Wun to note: "The increase looks quite significant, but coming from (October's reading of) 46.4 - which was a two- year low - I suspect it's just inventory restocking, and I'm not concerned as yet."

November's PMI data - released yesterday by the Singapore Institute of Purchasing & Materials Management (SIPMM) - fell short of economists' expectations. The median estimate of seven forecasts submitted to Bloomberg was for a PMI reading of 51.4, but the actual reading stood at 50.8, mainly due to dips in orders and output.

In addition, the imports index saw its first contraction since February, slipping 1.1 to 49.2 - below the 50-point threshold separating growth from contraction month-on-month.

Said DBS economist Irvin Seah: "Production activity has moderated somewhat, and this could essentially be a reflection of the approach of the year-end lull, as the earlier Christmas season orders were met and delivered."

Added Mr Song: "The pullback in overall factory readings, despite the uptick on the tech side, reflects a picture of a somewhat uneven manufacturing performance. This was already seen in the latest industrial production numbers, where we had a strong electronics reading, which was somewhat offset by softer chemicals and biomedical numbers."

OCBC's Ms Ling agreed, highlighting how non-electronics segments, like the biomedical cluster, are likely facing some specific industry pressures. "Pharmaceuticals have been underperforming of late both on the production and export fronts, possibly attributable to a different mix of active pharmaceutical ingredients produced," she noted.

Still, all three economists emphasised that November's PMI reading, even with its 0.4 dip, still stands above 50 and manufacturing is therefore in expansion mode.

While Mr Seah warned of the seasonal lull that January may bring due to the Chinese New Year period, he said: "Overall, it's still a good number. This marks the ninth time the manufacturing economy has expanded, so things are still good for now."

CIMB's Mr Song pointed out that Singapore's November PMI is in line with regional data from Indonesia and Vietnam released on Monday, which also saw a slight pullback in last month's PMI readings, while staying above 50.

"North America and Europe have also posted stronger PMI numbers. So if the global economy continues to consistently do better, then I would also expect (the other clusters of Singapore's manufacturing sector) to catch up as well," said Mr Song.

Ms Ling added that her manufacturing outlook hasn't changed with November's PMI reading: "The next industrial production figure is going to do fairly well, because November last year was a bit of a low base . . . We've pencilled in a manufacturing improvement story in Q4, and we're content to keep with that for now."