Malaysia’s manufacturing purchasing managers’ index (PMI) fell to 49.9 in February 2018 from 50.5 in January, following a reduction in new orders. The Nikkei Malaysia manufacturing PMI indicated that manufacturing conditions in the Malaysian manufacturing sector broadly stagnated during February following a marginal expansion at the start of 2018. New export orders declined during February, thereby ending a three-month sequence of growth. Meanwhile, production at Malaysian manufacturers rose for the seventh consecutive month during February. Reflecting greater production levels, manufacturing companies raised their staffing levels for the fourth month in succession. However, the rate of job creation eased to the weakest in the current sequence. On the price front, firms faced higher input costs during February. The rate of inflation picked up from January’s 15-month low and was in line with the series trend. Looking ahead, manufacturers remained optimistic towards the 12-month outlook for output. An expected improvement in underlying demand was the key factor behind positive sentiment. That said, the level of business confidence slightly fell from January and was weaker than the average recorded over five-and-a-half years of data collection.
Outlook. While December’s IPI decelerated sharply (2.9% yoy) and manufacturing output, which makes up two-thirds of the IPI, moderated to 5.3% yoy, the manufacturing sector remains resilient. We expect the 1Q18 manufacturing sector to sustain on a growth trend. However, as growth would most likely be a spill-over from last year’s peak in global demand, we expect growth to taper down but remain elevated. Further indicated by the slowdown in December’s E&E exports (Dec: 6.3% yoy; Nov: 21.0%), we hold a cautionary optimistic outlook on the sector.
The global manufacturing sector continued to expand at a solid pace in February. Although the J.P.Morgan Global Manufacturing PMI fell for the second month running to 54.2, this was still one of the best readings since early-2011. February data indicated that the upturn remained broadbased in nature. PMI readings signalled expansion across the consumer, intermediate and investment goods sectors. Global manufacturing production and new orders continued to rise at robust rates in February, albeit the slowest in four months in both cases. International trade flows also improved, as highlighted by a further increase in new export orders. New export business rose for the nineteenth month running. Business optimism remained positive, climbing to its highest level since February 2015. Nonetheless, the PMI, along with the latest data on production and expenditures, indicate that goods-sector expansion is moderating from the red-hot pace of late 2017.
February PMI data readings signalled expansion in almost all of the nations covered by the survey. The exception was a slight contraction in Malaysia. Most of the larger industrial nations saw slight growth decelerations in February, including the USA, the euro area, Japan and the UK. Although the easing was marginally greater in the Eurozone, it remained the strongest performing region overall. China, Brazil, Australia and Vietnam all saw their rates of growth improve, while Indonesia returned to expansion following contractions in the prior two months.
The Institute for Supply Management (ISM) index of manufacturing for February rose 1.7 points to 60.8 - a new cycle high - from the January reading of 59.1. The underlying details of the report were mixed, with the headline index driven by a strong advance in employment (+5.5 to 59.7), inventories (+4.4 to 56.7 - a cycle high), and supplier deliveries (+2.0 to 61.1). Although both production and new orders declined, they still remain near cycle highs that were reached at the end of last year. Prices paid rose 1.5 points to 74.2, also a new cycle high. The spread between new orders and inventories - a good leading indicator of activity - narrowed to 7.5 (-5.6 points) in February. Overall this indicator remains consistent with manufacturing activity continuing to expand through the first quarter of 2018.
Separately, IHS Markit said US factories are enjoying one of the best growth spells seen since 2014, boding well for the sector to make a solid contribution to GDP in the first quarter. The manufacturing PMI registered 55.3 in February, down slightly from 55.5 in January. Although below January’s 34- month high, the overall improvement in operating conditions across the manufacturing sector was one of the strongest recorded since late-2014. The survey’s output index readings for the first two months of 2018 are indicative of the sector growing at an annualised rate of just under 3%. At the same time, business confidence towards output in the year ahead improved, which supported further widespread job creation.
The US manufacturing sector continues to surprise to the upside, as demand for US manufactured goods remains robust. Moreover, comments by survey participants were optimistic, suggesting that demand is being supported by tax cuts, and that capacity pressures, exchange rate volatility, and component shortages are pushing up input prices. Alongside strong domestic demand come encouraging signs of robust foreign demand. New export orders surged to a cycle-high, and PMI manufacturing surveys suggest that global demand for manufactured goods remains strong in many parts of the world. This bodes well for first quarter global trade volumes and economic activity more broadly.
The Eurozone manufacturing PMI eased to a four-month low of 58.6 in February, down from 59.6 in January and well above its long-run average of 51.8. Although the Eurozone manufacturing PMI fell for a second successive month in February, the survey data indicate that factories are still enjoying their best growth spell for 18 years. The average PMI for the first quarter so far is the second-highest since the spring of 2000, falling just short of the near record peak seen in 4Q17. National PMI data also highlighted the broad-base of the upturn, with expansions seen in all of the countries covered. Growth was led by the Netherlands (survey record expansion), Germany and Austria. Although rates of increase eased in the latter two, and also in France, Italy and Ireland, growth was robust across the board. Spain and Greece both saw faster expansions, with Greece registering its best pace of improvement for 18 years.
Britain’s manufacturing sector growth cools to eight-month low in February as output falls to second lowest level since the June 2016’s Brexit vote. The IHS Markit/CIPS manufacturing PMI inched down to 55.2 in February from 55.3 in January. With the Index almost a carbon copy of January’s result and posting at its lowest for eight months, the sector was not filled with confidence in the second month of the year. All sectors lost their drive as manufacturing activity crawled at a snail’s pace not seen for almost a year.
The manufacturing PMI published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP), fell to 50.3 in February of 2018, down 1 point from January and the largest fall in more than six years. The reading was the lowest since a contraction in July 2016 as manufacturing activities in February was hit by slowing production and demand as Lunar New Year fell in mid-February this year. During this period, factory activities slow as the plants wind down and shut for the holidays. Slower growth was reported for output (50.7 from 53.5 in January), new orders (51.0 from 52.6) and buying activity (50.8 from 52.9). New export orders declined for the second straight month and employment contracted for the eleventh month in a row. On the positive note, business confidence strengthened (58.2 from 56.8 in January). Meanwhile, the Caixin/Markit manufacturing PMI for February stood at 51.6, up slightly from the previous month. Though only modest, the latest reading signalled the strongest improvement in operating conditions for six months.
The trend of building momentum in the Japanese manufacturing sector came to an end in the latest PMI survey period with the manufacturing PMI edged slightly lower to 54.1 in February, from 54.8 in January. Output growth slowed for the first time since July 2017, while both domestic and foreign demand rose to lesser extents. Nonetheless, sentiment in the sector remained upbeat, as firms hired additional staff at the quickest rate in 11 years amid expectations that the Japanese economy would continue along an expansionary path.
The February PMIs for Emerging Asia suggest the region’s manufacturing sectors remained in decent health. While the surveys point to rising prices, the big picture is that inflation in most of these economies is unlikely to become a major concern, suggesting their central banks will be in little hurry to hike interest rates. Manufacturing PMIs rose in Indonesia and Vietnam, but slipped in Taiwan, Malaysia and Philippines. Nonetheless, the Philippines was the only country where the average headline PMI in the first two months of 2018 was below its average for 4Q.
Among ASEAN countries, the Vietnamese manufacturing sector continued its solid start to the year in February, with a number of the survey’s indices pointing to gathering growth momentum. Manufacturing PMI posted 53.5 in February, up fractionally from 53.4 in January and signalling a solid monthly improvement in the health of the sector. Business conditions have strengthened continuously since December 2015. Growth in the Philippines manufacturing sector slowed further midway through the first quarter as the PMI slipped from 51.7 in January to 50.8 in February, signalling only a marginal improvement in the health of the sector. The latest reading was the joint second-lowest in the survey history. The health of the Indonesian manufacturing sector improved for the first time in three months in February, and to the greatest extent since June 2016. Indonesia manufacturing PMI rose from 49.9 in January to 51.4 in February. Growth in the Thai manufacturing sector gained further momentum midway through the first quarter. The manufacturing PMI rose from 50.6 in January to 50.9 in February, signalling a faster improvement in the health of the sector. Production volumes increased further, with forward looking indicators pointing to a pick -up in output in coming months: order book growth was the fastest for over two years and input purchasing activity was the strongest in the survey history. Meanwhile, business confidence improved further. However, the current upturn failed to boost hiring.
Elsewhere in Asia, the latest PMI release pointed to further solid growth of Taiwan’s manufacturing sector in February, albeit with the rate of expansion easing slightly since the start of the year. Manufacturing PMI registered 56.0 in February, down from 56.9 in January. India’s manufacturing sector remained in growth territory despite manufacturing PMI fell from 52.4 in January to 52.1 in February. The overall upturn was driven by increasing output and new orders, but both registered at slightly slower growth rates. South Korea’s manufacturing activities remained in expansionary territory, despite the PMI dipped to 50.3 in February from 50.7 in January. Latest data signalled a further improvement in operating conditions in the South Korean manufacturing sector.
Overall, we expect conditions in the region’s manufacturing sectors to remain fairly healthy over the coming months, helped by a combination of robust external demand and accommodative domestic monetary policy.
Source: BIMB Securities Research - 2 Mar 2018
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Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024