Korea: Manufacturing PMI signals marginal contraction in August
September 1, 2017
Korea’s manufacturing sector remained in contractionary territory in August, but the rate at which operating conditions worsened was marginal. The Nikkei manufacturing Purchasing Managers’ Index (PMI) reported by IHS Markit edged up from a four-month low of 49.1 in July to 49.9 in August. As a result, the index is now only fractionally below the crucial 50-point threshold that separates economic contraction from expansion, where it has been for 12 of the last 13 months.
The August report showed manufacturing production declining, but at a softer pace than in the previous month. New orders growth was modest in the month, but reflected new export business growth for the first time since January. Lower output requirements saw firms reducing their purchasing activities, with stocks of raw materials and other pre-production inventories dwindling in August. However, firms continued to hire new staff as expectations of future output volumes remained upbeat. Nonetheless, backlogs of work declined for a second consecutive month in August as operating capacity was freed up. Meanwhile, input prices rose as a result of a weaker Korean won and higher raw material prices. Due to still-subdued demand, firms were unable to roll these costs over to customers.
Author: David Ampudia, Economist