Taiwan: Manufacturing PMI falls to 14-month low in July on softer output growth
August 1, 2018
The Taiwanese manufacturing sector again lost traction in July for the fifth time in the past six months. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, fell from 54.5 in June to a 14-month low of 53.1 in July. It nevertheless remained above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for over two years.
The less favorable operating conditions in July came largely on the back of a marked slowdown in production growth, which reached its lowest level since September 2016. In addition, growth in new business—both from domestic and foreign orders— continued to soften in July, renewing recent concerns from manufacturers about the sustainability of the expansion in the sector given the increasingly uncertain trade environment. The effects of the trade tensions between China and the United States hit business confidence in the July data and Annabel Fiddes, principal economist at IHS Markit, noted that “sentiment towards the year ahead outlook for production fell to the lowest level in 22 months amid concerns over the global economic outlook and the potential impact of trade wars and tariffs”.
Amid this uncertainty and manufacturers’ efforts to contain costs, employment gains were again modest in July, although payroll growth accelerated somewhat from June’s one-year low. Meanwhile, the lower growth in new orders translated into the slowest increase in work backlogs in nine months. Purchasing activity also continued to grow robustly as firms tried to protect themselves against future input cost inflation on reports of supplier shortages. Indeed, input cost pressures remained sharp in July, which again led manufacturers to raise their selling prices. However, the data indicates that input prices rose faster than output prices, meaning manufacturers had to compress their margins somewhat.
Overall, with a downward trend in the headline PMI, falling business confidence and a possible escalation of the U.S.-China dispute, the available data points to softening growth in the manufacturing sector in H2 2018.
Author: Joffrey Simonet, Economist