Taiwan: Manufacturing PMI tumbles to over two-year low in September as orders and output falter
October 1, 2018
The Taiwanese manufacturing sector slowed to a near standstill in September, continuing the downward trend observed since the beginning of the year. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, fell sharply from 53.0 in August to 50.8 in September, a 25-month low. The index thus remained only slightly above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for over two years.
The decline in the index came on the back of subdued demand conditions. Output declined in the month for the first time since May 2016, while both total new orders and export orders also fell—the latter at the quickest rate in two-and-a-half years. Though the declines recorded were still small, they caused backlogs of work to increase at the slowest pace in 27 months. On the other hand, employment growth picked up after stagnating in August, signaling manufacturers’ difficulties to fill vacancies amid a tight labor market were easing somewhat.
Supply-side indicators further show that manufacturers’ supply chains continued to be strained in September, with supplier delivery times lengthening at a markedly faster pace, and input cost inflation remaining sharp—despite softening somewhat. This was likely due to low stocks at the supplier level and caused manufacturers to continue increasing their selling prices at a robust rate. Meanwhile, manufacturers’ stocks of inputs and finished products continued to increase, albeit modestly.
Lastly, business confidence improved to reach a three-month high, but remained lower than it had been in the first half of the year. Annabel Fiddes, principal economist at IHS Markit, noted that “confidence around the business outlook, though up from August, meanwhile remained mired by concerns over the impact of the US-China trade war and a potential slowdown in the domestic economy”.
All told, a downward trend in the headline PMI, subdued order growth and the escalating U.S.-China trade dispute suggest growth in the manufacturing sector has been modest in the third quarter and might continue to soften in coming months.
Author: Joffrey Simonet, Economist