HSBC Vietnam Manufacturing PMI™: Steep fall in input costs amid lower fuel prices
HSBC Vietnam Manufacturing PMI™: Steep fall in input costs amid lower fuel prices
Vietnamese manufacturing production continued to rise in January, supported by further growth of new orders.As a result, employment increased at a solid pace that was the sharpest since December 2013. Meanwhile, input costs decreased at the fastest pace in the survey’s history as a result of falling fuel prices. This in turn led manufacturing firms to reduce their output prices sharply.
Summary
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – pointed to a further modest strengthening of business conditions at Vietnamese manufacturing firms, posting 51.5 in January from 52.7 in December. Operating conditions have now improved in each of the past 17 months.
Both output and new orders continued to rise at the start of 2015, albeit at weaker rates than seen in December. Improving client demand had been behind the rise in new work, in turn leading firms to raise production. New export orders, meanwhile, rose only slightly amid some reports of weakening client demand in export markets.
A slowdown in growth of new orders, as well as reported productivity improvements, led to a reduction in backlogs of work in the sector. The decline in outstanding business was also reflective of a solid rise in employment. Moreover, the rate of job creation was the sharpest in just over a year, and one of the fastest in the history of the series.
Falls in the price of oil in global markets led a number of respondents to report reduced fuel costs in January. Consequently, input prices at Vietnamese manufacturing firms decreased at a substantial pace that was the sharpest in the survey’s history. The strength of the fall surpassed the previous record seen in June 2012. In response to sharp reductions in input costs, manufacturers lowered their output prices accordingly. Charges decreased for the fourth month running, and to the greatest extent in two-and-a-half years.
A modest improvement in vendor performance was registered in January, with panellists suggesting that faster payments and requests for quicker deliveries had resulted in shorter lead times. Delivery times have now shortened in each of the past four months.
Purchasing activity increased for the seventeenth successive month, albeit at the weakest pace since October. Where purchasing rose, this was linked to higher production requirements. Despite a rise in input buying, stocks of purchases decreased for the first time in three months. According to respondents, inputs purchased in previous months had been used in the production process during January.
Stocks of finished goods also decreased as products were delivered to clients. The fall in post-production inventories ended a six-month sequence of accumulation.
Comment
Commenting on the Vietnam Manufacturing PMI™ survey, Trinh Nguyen, Asia Economist at HSBC said: “The deceleration of global demand is taking a bite at output growth, although competitive pricing helps counter the slowdown of external demand. Despite slowing new export orders, employment rose sharply, highlighting strong demand for Vietnamese goods, necessitating new headcount. With input prices decelerating, thanks to the sharp decline of oil prices, and inventories low, we expect output to continue to expand in February, although the Lunar festivity means that there will be some seasonal slowdown.”
