Taiwan: Manufacturing PMI picks up in June on upturn in new orders growth
July 2, 2018
The Taiwanese manufacturing sector regained some steam in June after four months of deceleration. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, rose from an 11-month low of 53.4 in May to 54.5 in June. The PMI thus remained above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for close to two years.
The improvement in operating conditions in June came largely on the back of an uptick in production growth, itself supported by higher new orders, both domestic and from abroad. This was welcome news, as the new orders expansion—and notably export orders growth—was seen decelerating markedly in May, fueling concerns from manufacturers about the sustainability of the current expansion amid a deteriorating global trade environment. Nevertheless, unemployment only rose slightly in June, with some companies commenting that cost containment efforts led to a more cautious payroll expansion in the month. This low payroll growth, contributed to backlogs of work again increasing at a sharp pace in June.
Signs of capacity constraints and supply chain strain were still apparent in June. Purchasing activity increased, while supplier delivery times again lengthened markedly. Firms also continued to build up inventory levels, both for raw materials and finished products, while input cost inflation accelerated from May’s already sharp level. This in turn caused a notable increase in manufacturers’ selling prices to defend margins.
Overall, business confidence regarding the 12-month outlook remained high, boding well for manufacturing activity in H2. However, Annabel Fiddes, Principal Economist at IHS Markit, commented that:
“Although the headline PMI reading improved in June, the average reading over Q2 (54.2) remained below that seen over the opening quarter of 2018 (56.1), suggesting that overall growth momentum has softened slightly since the start of the year”.
Author: Joffrey Simonet, Economist