Korea: Manufacturing PMI remains in expansionary territory in October
November 1, 2017
After returning to expansionary territory in September, Korea’s manufacturing sector lost some momentum in October. The Nikkei manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, edged down from 50.6 in September to 50.2 in October. Although this represents a slight deterioration in the sector compared to the previous month, October’s index reading was still above the 50-point threshold that separates expansion from contraction.
The dip in the PMI in October was largely the result of lower production, and subsequently lower staffing levels. However, incoming new business orders rose for a fifth straight month in October, which was due to new products for sale and an increase in domestic customers, which more than offset weak export orders. With lower production and higher business orders, businesses resorted to using post-production inventories to keep up with order book volumes in the month. Consequently, stocks of finished goods declined in October. In terms of price developments, input cost inflation accelerated to a nine-month high in October, which led businesses to pass on part of this extra cost burden to customers.
With their eyes toward the future, businesses in the manufacturing sector were optimistic about future production, and, as a result, their confidence levels strengthened in October.
Reflecting on how the month’s price developments impacted production schedules, Joe Hayes, Economist at IHS Markit, noted:
“The mild influx of new business was linked to sharp input cost inflation arising from hikes to raw material prices. Orders were received ahead of schedule in anticipation of further cost pressures, as customers attempt to hedge against a continuation of the current inflationary trend.”
Author: Edward Gardner, Economist