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Korea PMI August 2018

Korea: Manufacturing sector nearly recovers in August on a rebound in new orders

Although business activity contracted in the manufacturing sector for the sixth consecutive month in August, the contraction was significantly less than in the previous month. The Nikkei manufacturing Purchasing Managers’ Index (PMI), reported by IHS Markit, rose to 49.9 in August from 48.3 in July, just below the 50-point threshold that signals a contraction over an expansion in the manufacturing sector.

The improved PMI reading in August came on the back of the first increase in new orders in six months, in part thanks to new product launches boosting demand. Nevertheless, total output in the manufacturing sector declined—reasons for this included a lack of staff availability and unusually hot weather, according to businesses surveyed. Meanwhile, for the first time in eight months, backlogs of work rose in August.

Exchange rate movements and higher costs of production, particularly in terms of raw materials and labor, led to greater input prices in August. In turn, output prices were raised by businesses, although the rate of increase was marginal. On the employment front, workforce numbers in the manufacturing sector were broadly unchanged in August from July. In terms of manufacturers’ inventories, stocks of inputs and finished goods were cut in August, partly due to uncertainty regarding the short-term demand outlook.

Looking towards the coming 12 months, manufacturers’ optimism decreased to the lowest level in 11 months in August. Nevertheless, firms still expect that output will increase over that one-year period.

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