Korea: Manufacturing PMI for December signals contraction in the sector
January 2, 2018
The manufacturing sector lost some steam in December. The Nikkei manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, fell from 51.2 in November to 49.9 in December, the lowest reading since August 2017. The index therefore came in below the 50-point threshold that separates expansion from contraction in the manufacturing sector.
Businesses reported an unfavorable environment in December, which led them to cut output in the month. New orders, however, increased—propped up by the domestic economy—but at the slowest rate since July. Firms were hesitant to increase operating capacities in the month, leading employment in the sector to fall for a fourth consecutive month. Nevertheless, backlogs of orders decreased in December as businesses caught up on outstanding work.
Input prices rose as businesses were affected by higher oil and metal prices. As a result, increased output prices reduced the impact on profits. Regardless of price pressures, firms continued purchasing activity in December in preparation for future orders, leading pre-production inventory levels to increase for a second consecutive month. Looking ahead, this expectation for increased orders and planned new product launches led businesses to stay optimistic regarding future output.
Author: Edward Gardner, Economist