Korea: Domestic and foreign demand helps the manufacturing sector show signs of expansion in January
February 1, 2018
The manufacturing sector signaled a swing from December’s contraction to a modest expansion in January. The Nikkei manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, rose from 49.9 in December to 50.7 in January. The index therefore came in above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
Businesses in the manufacturing sector reported that stronger demand from clients, both new and old, prompted them to increase output in January—new orders increased for the eighth month in a row in January. In addition, demand rose from overseas as well as domestically in January, helping to drive new export orders higher for the first time since August. In order to keep up with orders, businesses reported lower post-production inventories and higher purchasing activity in January.
On the back of increases in commodity prices and a hike in the minimum wage rate, manufacturers reported that input prices rose in January at the fastest rate in 12 months. As a result, businesses increased output prices in January faster than in any month since February 2011. Manufacturers were seemingly uninterested in raising employment levels in January—job shedding in the manufacturing sector occurred for another month, continuing the downward employment trend observed since September. With fewer employees on the payroll, manufacturers reported a slight increase in backlogs of work in January. Looking ahead, business optimism in the manufacturing sector increased in January, with expectations of both a stronger economy and greater sales buoying the outlook.
Author: Edward Gardner, Economist