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Singapore manufacturing still in growth mode in August; electronics snaps losing streak
SINGAPORE manufacturing sentiment was positive for the second month in a row in August, as the Purchasing Managers' Index (PMI) reading came in at 50.1 points.
Despite a 0.1-point dip on the month before, the PMI stayed in expansionary territory on an improvement in new orders and stronger factory output growth, according to data on Thursday.
The manufacturing sector was boosted by a rebound in the linchpin electronics industry, where the sub-index reversed six months of contraction to touch a two-year high of 50.6 points.
This recovery in electronics PMI came on a return to growth for new orders, new exports, and factory output, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which publishes the early gauge of factory performance.
Readings above 50 point to expansion, while those below indicate contraction.
Optimism was fuelled by the latest improvement in the electronics industry, where the latest PMI reading - up by 1.4 points on July - is the highest since September 2018. Electronics last grew in January, in a short-lived reprieve from a 14-month losing streak that spanned 2019.
But new electronics orders most recently rose from 48.3 in July to 50.8 in August, while exports turned expansionary, from 48.6 to 51.0 and output was up from 47.9 to 50.3.
"There is still growth across wafer fab equipment, assembly and packaging equipment, and semiconductor test equipment, led by regional demand in China, Taiwan and Korea, as well as 5G demand," concluded Selena Ling, head of treasury research and strategy at OCBC Bank.
Said Sophia Poh, vice-president of industry engagement and development at the SIPMM: "The August PMI readings pointed to a silver lining in the electronics sector, which appeared to provide a needed boost for the overall manufacturing sector to remain on the expansion track."
She added that "the pro-business measures initiated by the Singapore government", such as financing grants, tax relief and wage subsidies, were likely effective in helping manufacturers, based on anecdotal evidence from survey respondents.
"Measures such as financing grants and enhanced financial support are effective for companies struggling to secure orders; at the same time, measures such as tax rebates and fee waivers help to lower operating costs," Ms Poh added in an e-mail to The Business Times.
All the same, analysts have sounded the alarm on the state of the labour market in manufacturing, which employed 472,000 workers as at mid-2020.
The overall employment PMI reading for the manufacturing sector posted its seventh month in contraction in August, with a reading of 48.6. The electronics employment index was also negative, although the pace of decline eased slightly from July.
"Hiring sentiments continued to stay soft, underlining a potentially weak labour market outlook in the months ahead," said United Overseas Bank economist Barnabas Gan, who believes that Singapore unemployment will hit 3.5 per cent "with upside risk for this year ahead".
The Republic's overall unemployment rate was 2.3 per cent as at end-2019.
Ms Ling also warned that "one key segment to watch will be the biomedical manufacturing cluster as the July industrial production data had already shown a second month of pullback".
The modest growth in Singapore's leading manufacturing data was in line with the mixed picture around the region, as Asian economies scrabbled to stay in place amid the Covid-19 outbreak.
Factories in mainland China have led the recovery charge, notching a reading of 53.1 in August in the private-sector Caixin PMI survey on sharp jumps in output and new orders. Taiwanese manufacturers also reported strong month-on-month growth to 52.2 in August.
Meanwhile, manufacturers in Japan, South Korea and Thailand continued to post contractionary readings but were up on the month before - even as Malaysia retreated into negative territory, and Vietnam extended its declines for the second straight month.
Still, "improved external demand was seen nearly across the board", Barclays Bank analysts reported earlier this week, naming export orders as a bright spot.
"A further sharp jump in PMIs in the near-term is unlikely, but we expect regional PMIs to sustain the improving trend," they added.
But another Singapore survey, which covers not just manufacturing but also construction, wholesale, retail and services, was in the red in August for the seventh straight month.
The IHS Markit Singapore PMI reading fell to 43.6, from 45.6 in July, which IHS Markit said "indicated a marked deterioration in the health of the private sector" as construction and business services bore the brunt of the weak economic situation.
Mr Gan from UOB said: "This suggested that much of the decline was due to weakness in Singapore's construction and services (including retail) sector."