Activity in the U.S. manufacturing sector expanded slightly in September for a second consecutive month amid muted demand for goods and easing inflation pressures.

The S&P Global U.S. manufacturing PMI rose to 52.0 in September from 51.5 in August, virtually above the preliminary reading of 51.8. Both production and new orders rose, albeit only marginally,

With manufacturers reporting a return to growth of order books for the first time in four months, as well as improved job gains, it brings positive news that business conditions are starting to improve again.

New orders rose for the first time in four months as companies reported an improvement in demand conditions. Producers of both consumer goods and business equipment reported improved sales to the domestic market, while sales abroad declined due to slowing global growth and the dollar's strength.

With supply-chain delays easing again in September and shipping costs falling, upwards pressure on firms' costs has moderated sharply, which will feed through to lower goods prices to consumers.

The brightest signs are from the domestic market, with producers of both consumer goods and, most notably, business equipment reporting improved sales to the home market.

Still the downside risk to the manufacturing sector remains in the third quarter. Manufacturers across the board are reporting further export losses, linked to weaker economic growth abroad and the dollar’s strength. And the strong dollar is curbing exports, a beneficial effect from the greenback’s strength is being seen via lower import costs.

Malaysia’s Manufacturing PMI Dipped Into Recession.

Malaysia’s manufacturing purchasing managers' index (PMI) dipped into the recession mode. The reading moved back to under the 50 marks in September, posting 49.1 from 50.3 in August. It turned out to be the lowest reading in 2022.

Averaging 50.0 in 3Q22, the PMI represents a just over 5% y/y GDP growth. This indicates some loss of momentum compared to the 2Q22. But this assessment is purely based on PMI data only.

The latest PMI data suggested the loss of momentum of customer demand. This resulted in a moderation in new orders in September, ending a five-month sequence of expansion. Similarly, new export orders slowed amid weakness in international demand conditions.

And there were further signs that the rebound in growth in Malaysia's economy seen earlier in the year could be losing steam as challenging conditions across the global manufacturing sector limit demand and production at Malaysian firms as well.

That said, the latest PMI data plus the strong exports data are still indicative of growth in the third quarter of the year. Our preliminary projection shows a 3QGDP growth of between 9.5%- 10.2%

Source: AmInvest Research - 4 Oct 2022