Korea: The manufacturing sector returns to contractionary territory in May
June 3, 2019
The Nikkei and IHS Markit manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in May from 50.2 in April, dashing hopes of a revival in the manufacturing sector—April’s 50.2 reading had marked the first time in four months that the PMI had landed above the 50-point threshold that separates contraction from expansion in the manufacturing sector. Joe Hayes, economist at IHS Markit, reflected on May’s downturn: “Given the re-escalation of trade tensions between the U.S. and China, as well as no real signs of the downturn in the global trade cycle bottoming out, South Korean manufacturers are facing extreme difficulties.”
There was a faster decline in new orders in May, partly attributable to fragile conditions in both domestic and export markets, which seemed to suffer from slowdowns in the automobile and semi-conductor industries, and higher global trade protectionism. Notably, new export orders fell for the 10th consecutive month and at a faster pace than in April. Against this backdrop, total output fell modestly in May. Lower production led to lower staffing levels in May, marking the sixth headcount cut in seven months. With fewer new orders coming in, firms were able to cut their backlogs of work at a modest pace, while input purchasing activity stagnated. Pressure on supply chains was less intense in May, and inventories of both inputs and finished goods dropped. In terms of prices, output charges fell, despite a strong rise in input costs. Businesses became far less optimistic about future operating conditions in May, with sentiment falling to a 33-month low.
Author: Edward Gardner, Economist