• Malaysia manufacturing PMI deteriorates further in May

• Global Manufacturing PMI at nine-month low in May

• US manufacturing activity grows faster than expected in May

• Eurozone PMI manufacturing at 15-month low

• Rebound in UK manufacturing far from convincing

• China's factory activity logs moderate growth in May

• Japan's manufacturing PMI slows in May

• ASEAN manufacturing growth gains pace in May

Malaysia’s manufacturing PMI deteriorates further in May

Operating conditions across Malaysia’s manufacturing sector deteriorated in May, thereby stretching the current period of decline to four months. Manufacturing PMI fell from 48.6 in April to 47.6 in May. This indicated a solid deterioration in operating conditions that was the strongest since June 2017. A fall in new orders was a key factor contributing to the downward movement in the headline index. Moreover, the rate of contraction was the strongest in nearly one-and-a-half years. Meanwhile, new export orders fell for the fourth successive month in May with the rate of decline moderated to the weakest in three months. Output across Malaysia’s manufacturing sector declined in May and the decline was the fastest in the current three-month sequence of contraction. For the first time in seven months, Malaysian manufacturing companies reduced their payroll numbers in May. Cost-cutting measures and poor demand conditions were the key factors behind lower payroll numbers. Amid reports of poor demand conditions, purchasing activity declined at the fastest pace since last June. However, Malaysian manufacturers retained strong projections for output in the year ahead. Optimism was rooted in hopes that the new government will spur business activity and improve demand conditions

Outlook. Latest manufacturing PMI data highlighted that Malaysian manufacturing conditions deteriorated at the fastest pace since June 2017, primarily driven by the sharpest fall in new business since December 2016. PMI data suggested that weak demand emanated from both the domestic and foreign markets. Manufacturing indicators are pointing to easing growth ahead and we still see a dreary outlook for the domestic manufacturing sector as exports appear to remain weak over 1Q18. On a positive note, key PMI finding was that the manufacturers retained strong projections for output in the next 12 months, rooted in hopes that the new government will spur business activity in the year head.

Global Manufacturing PMI at nine-month low in May

The headline JPMorgan Global Manufacturing PMI fell from 53.5 in April to 53.1 in May, its lowest since August of last year. The average reading so far in quarter two (53.3) is indicative of a mild growth deceleration compared to the opening quarter (54.0). However, a weakening of new order inflows to the lowest since June of last year suggests production growth could wane further in coming months. The softer upturn in new orders largely reflected a slowing in global trade flows. New export sales rose only marginally in May, registering the smallest monthly global increase since August 2016. Emerging market exports were especially subdued, falling for a second successive month to indicate the worst period of emerging market export growth for almost one-and-a-half years.

A major change in recent months has related to the regional breakdown. The US has now recorded faster manufacturing growth than the Eurozone for two successive months, the former enjoying its best growth spell for almost four years so far in the second quarter. The Eurozone has meanwhile seen growth wane from recent highs, sliding to a 15-month low in May. Despite the brighter performance from the US, the top of the manufacturing rankings continued to be dominated by a handful of European countries, clustered around Germany and led once again by the Netherlands. Growth eased to a seven-month low in Japan and an 11-month low in Taiwan during May. The China PMI also remained at a subdued level, albeit still above 50.0, and the downturn in South Korea also continued. The Russia PMI signalled contraction for the first time in 22 months, while the upturn in Brazil slowed to nearstagnation.

US manufacturing activity grows faster than expected in May

The ISM data showed growth in manufacturing activity in the US. accelerated by more than expected in the month of May. The ISM manufacturing PMI climbed to 58.7 in May from 57.3 in April, with a reading above 50 indicating growth in the manufacturing sector. The bigger than expected increase by the headline index was partly due to a notable acceleration in the pace of production growth, as the production index jumped to 61.5 in May from 57.2 in April. The new orders index also rose to 63.7 in May from 61.2 in April, while the employment index increased to 56.3 from 54.2.

Separately, IHS Markit survey data came in at 56.4 in May 2018, little-changed from April's final 56.5. The reading marked the second-strongest improvement in the health of the manufacturing sector since September 2014, reflecting sharp expansions in output and new orders.

Eurozone PMI manufacturing at 15-month low

Eurozone PMI manufacturing was finalized at 55.5. The Netherlands, Germany and Austria remain strongest performing nations despite some deterioration. Netherlands PMI manufacturing, despite hitting an 8-month low, was at 60.3. Austria PMI manufacturing hit 14-month low at 57.3. Germany PMI manufacturing hit 15 month low at 56.9. France PMI manufacturing was revised down by 0.7 to 54.4. Italy PMI manufacturing dropped to 52.7 in May, down from 53.5. IHS Markit noted in the release that “some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months”.

Rebound in UK manufacturing far from convincing

UK PMI manufacturing rose to 54.4 in May, up from 53.9. Output growth ticks higher despite slower expansion of new work received and supply-chain constraints and cost pressures intensify. The rebound in the PMI from April’s 17-month low is far from convincing as manufacturers have yet to fully adjust their production to the weakening trend in new business growth. Also, manufacturers will also likely be constrained if the resurgence in both cost inflation and supply-chain pressures becomes more firmly embedded.

China's factory activity logs moderate growth in May

The manufacturing PMI published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP), reported that factory activity grew more than expected in May, with the official manufacturing PMI coming in at 51.9 — the highest level since October 2017. The rebound in May was driven by the factory output sub-index. Breakdown PMI data confirm the view that suppressed production over the winter and restocking in 2Q could support a rebound in the PMI and industrial production. However, better PMI readings may be short lived, as the growth of end-demand, such as infrastructure and property investment, has slumped in recent months, due at least in part to the government’s deleveraging efforts. The PMI is expected to fall in 2H and the government to continue its moderate policy easing in coming months.

Meanwhile, the Caixin Manufacturing PMI showed that manufacturing sector logged a moderate expansion in May. The Caixin/Markit PMI came in at 51.1 for May, unchanged from April. Even though the May survey pointed to just a modest expansion of China's manufacturing sector, production growth and new orders picked up slightly from April on improved client demand, however, new export sales fell for the second straight month. Overall, operating conditions across the manufacturing sector remained stable. The growth in the price of industrial products has gained momentum, however, the export situation was still disappointing.

Japan's manufacturing PMI slows in May

The Nikkei Japan Manufacturing PMI slowed in May as it failed to reverse the acceleration in previous month, falling to 52.8 from 53.8 in April. Furthermore, the index pointed to the joint-weakest expansion in nine months, on a par with October 2017. However, the latest index reading was in line with the average observed across the current 21-month upswing. Total new orders increased to a softer extent, while the exports index increased for the first time since January. A stronger improvement in foreign demand for Japanese goods will be welcomed; however, the pace of expansion in May remains markedly below those seen at the start of the year prior to the JPY appreciation. To the downside, the weaker growth rate in overall new sales suggests some softening in the domestic economy.

ASEAN manufacturing growth gains pace in May

ASEAN manufacturing growth gained further momentum midway through the second quarter, with the headline Nikkei ASEAN Manufacturing PMI reaching the highest level since July 2014. The headline PMI rose from 51.0 in April to 51.5 in May, signalling a fifth monthly improvement in the health of the sector.

May data showed six of the seven countries covered by the survey indicating an improvement in manufacturing conditions, up from five in April. Vietnam overtook Myanmar to lead the ASEAN manufacturing PMI rankings, as growth in its manufacturing sector picked up in May. The Vietnamese manufacturing PMI rose to 53.9 in May from 52.7 in April. The latest reading signalled a solid improvement in the health of the sector, and the most marked since April 2017. Business conditions have now strengthened on monthly basis throughout the past two-and-a-half years. Moreover, new orders rose at a sharper rate than in April, helped by a record expansion in new export business. Growth of output and employment also picked up. Manufacturers raised their output prices only slightly in the latest survey period, thereby helping to secure sales.

The Philippines was close behind after registering a faster improvement in operating conditions. Rising from 52.7 in April to 53.7 in May, the Nikkei Philippines PMI signalled a faster pace of growth for a third straight month. The latest reading was the highest so far this year, marking a solid improvement in the health of the sector.

The health of Myanmar’s manufacturing economy strengthened at a weaker pace than in April, which saw the nation slip to fourth position in the rankings. Singapore and Indonesia built on April’s growth momentum, with both indicating stronger improvements in manufacturing conditions in May. Indonesia’s manufacturing PMI rose from 51.6 to 51.7 in May. Though modest, the improvement in the health of the sector was the strongest since June 2016. Growth was underpinned by the fastest rise in new orders since July 2014, while output rose at a historically marked pace.

Thailand returned to growth for the first time in three months. Midway through the second quarter, Thailand’s manufacturing sector lurched back to life, with the Nikkei PMI data indicating an improvement in business conditions for the first time in three months. A faster increase in output and renewed growth in sales drove the headline PMI higher. Thailand manufacturing PMI rose from 49.5 in April to 51.1, signalling the first improvement in the health of the sector for three months. The latest reading was the second highest since the survey started in December 2015.

Malaysia was the only country signalling a decline in the health of its manufacturing sector, with the pace of deterioration the steepest for nearly a year.

Elsewhere, the health of the South Korean manufacturing sector deteriorated in May as the manufacturing PMI recorded 48.9 in May, up from 48.4 in April, to signal a third successive month of deteriorating business conditions in the South Korean manufacturing sector. Although the latest decline was softer than that seen in the previous month, it was the second-greatest in 14 months. India’s latest PMI survey signalled a further, albeit slower, improvement in the health of the manufacturing sector in May. India manufacturing PMI fell from 51.6 in April to 51.2 in May. Overall, the respective index registered above the neutral 50.0 threshold for the tenth consecutive month. Latest PMI data indicated that growth momentum across Taiwan’s manufacturing sector cooled further in May, with firms signalling softer rises in both output and new work. At 53.4 in May, the manufacturing PMI fell from 54.8 in April. The health of Taiwan’s goods producing sector has now strengthened in each month for the past two years. However, the latest index reading signalled that the pace of improvement weakened to an 11-month low.

Source: BIMB Securities Research - 4 Jun 2018