Korea: Manufacturing sector returns to expansionary territory in April
May 2, 2019
The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and reported by IHS Markit, recovered in April, rising to 50.2 from 48.8 in March. As a result, the PMI reading now lies a hair above the crucial 50-point threshold separating contraction from expansion in the manufacturing sector for the first time in six months.
The slight improvement in April was primarily due to a stabilization in output and increased job creation. Production rose to a six-month high in April, however several key sectors continued to cut output, including the all-important semi-conductor industry and automobile sector. Employment also contributed to the rebound as firms increased staff levels for the first time since last October, due to new product development and compliance with the new 52-hour work week regulation. Moreover, firms ramped up purchasing activity, despite weaker demand, and anecdotal evidence suggests new product lines and expectations of higher raw material costs played a role in firms’ increased buying activity.
On the other hand, new business orders fell again in April, albeit at softer pace than in March, dragged down by weak demand for Korean manufactured goods in both domestic and foreign markets and in spite of firms’ price discounting in recent months. Export orders were weighed on by soft demand from Europe, China and Japan. In turn, inventory levels fell amid anemic new business inflows and firms used stocks of finished goods to clear backlogs of work, which were reduced at the quickest clip in nearly four years. Finally, firms expressed little optimism for production over the coming 12 months on concerns over export prospects.
On the price front, input cost inflation accelerated due to raw material prices and labor costs. In contrast, output prices continued to fall as clients demanded discounts and businesses lowered prices amid heightened competition.
Author: Lindsey Ice, Economist