• Malaysia’s manufacturing PMI continues to contract in November

• Global manufacturing remains subdued in November

• US ISM manufacturing rebounds in November

• Weakest growth in Eurozone manufacturing since August 2016

• UK manufacturing remains subdued

• China manufacturing sector stalls in November

• Japan's manufacturing eases in November

• ASEAN manufacturing rebounded

Malaysia’s manufacturing PMI continues to contract in November

Malaysia’s Manufacturing Purchasing Managers Index (PMI) dropped to 48.2 in November 2018 from 49.2 in the previous month. It marked the second straight month of contraction in manufacturing activity, as both output and new orders fell at a faster rate. New orders decreased markedly in November and to the greatest extent for six months. Also, firms reduced input buying and subsequently reduce their stocks of purchases. Meanwhile, export sales picked up from the previous month, indicating that the soft patch in order book volumes stemmed from domestic client. At the same time, employment grew the most since August, while backlogs of work were reduced for a third month in a row. On the price front, survey data continued to highlight strong cost pressures, causing firms to raise output charges as part of efforts to alleviate margin erosion. Business sentiment softened as some firms raised concerns about the wider economy. On the other hand, despite the downward trend in current output volumes, Malaysian manufacturers expect production to pick up over the next 12 months. Forecasts of improved demand and planned new product introductions underpinned the optimistic view.

Outlook. Malaysia’s manufacturing sector observed a deeper decline in business conditions during November, with the headline PMI fell further into negative territory tumbling to a six month low. Growth prospects for the fourth quarter took a turn for the worse in November, as the headline PMI indicated a second successive monthly decline in the manufacturing sector. According to the latest PMI survey, export sales picked up from the previous month however, the rise in new business from overseas was only marginal. September’s export growth rebounded 6.7% yoy, after suffering a 0.3% drop in August but growth remains unconvincing as momentum continues to slow. Meanwhile, industrial production index (IPI) increased marginally higher to 2.3% yoy in September as compared to 2.2% yoy rise posted in the August. The modest pick-up in IPI performance is in tandem with the improvement of Malaysia’s external trade in September. Key forward-looking gauges of macroeconomic health also depicted downside risks, as overall demand fell sharply, leading firms to be less willing to hold stock. The moderating pace is consistent with gradual rise in global commodity prices, expectation of slight slowdown in overall business performance on top of the USChina trade conflict.

Global manufacturing remains subdued in November

Conditions in the global manufacturing sector remained lacklustre in November. The headline JPMorgan Global Manufacturing PMI posted 52.0, unchanged from October’s 23- month low as growth of output and new orders remained below their respective long-run averages. Production growth ticked higher in November, but remained among the weakest seen over the past two-and-a-half years. New orders rose at a pace unchanged from October’s 25-month low, with international trade flows the main drag. The level of incoming new export business fell for the third straight month in November. Global manufacturing employment rose for the twenty seventh consecutive month in November. However, the rate of job creation was weaker than in October. Inflationary pressures eased in November. Input costs increased at the slowest pace since August 2017, while output charge inflation eased to a 16-month low.

Global PMI readings signalled expansions across the consumer, investment and intermediate goods sectors. The sharpest growth was seen in the first and the weakest in the latter. All three sub-industries saw output and new orders rise. Among the largest nations covered by the survey, manufacturing business conditions improved in the US, the Eurozone, Japan, China, the UK, Brazil and India. Deteriorations were seen in South Korea, Italy, Taiwan, Mexico, Poland, Turkey, Thailand and Malaysia.

Overall, global manufacturing indices continue to indicate that economic activity has broadly slowed in the last few months, and affirms the recent leg down in prices of commodities, especially oil. Although the deal between the US and China at the G20 meeting this weekend may boost near-term sentiment, weaker foreign demand and the high USD are factors that are likely to continue to weigh on demand for US manufactured goods in the months ahead.

US ISM manufacturing rebounds in November

US manufacturing activity picked up in November, according to data from the Institute for Supply Management (ISM) though a gauge of prices paid tumbled from a month earlier. ISM's US manufacturing PMI rose to 59.3 in November from 57.7 in October. With the exception of supplier deliveries, which has declined for two consecutive months, the main subcomponents of the index advanced in the month. New orders rebounded 4.7 points to 62.1, inventories rose 2.2 points to 52.9, and employment rose 1.6 points to 58.4. The rise in production was a bit subdued, rising 0.7 to 60.6. The trade components of the report remained largely unchanged. New export orders held at 52.2, while imports fell 0.7 to 53.6. These levels remain well below those recorded at the time the U.S. administration levied tariffs on steel and aluminium imports this past March. Although volatile and not seasonally adjusted, the drop in prices paid index is worth a mention. The index dropped 10.9 points to 60.7 suggesting that prices are still rising but at the slowest pace since June 2017. The reduction reflected declines in some aluminium, steel, and copper commodities, while freight prices were cited as easing as well.

Separately, IHS Markit manufacturing PMI showed the pace of growth in the factory sector slipped to a three-month low, though a gauge of new orders ticked higher. Markit's US manufacturing PMI fell to 55.3 from 55.7 in October, the lowest since August. Despite the headline PMI slipping to a three-month low, November saw manufacturers enjoy another encouragingly solid month of improving business conditions. Dig deeper behind the headline number and the picture brightens further. Production continued to increase in November. The rise in output was solid overall, albeit the joint-slowest in over a year. New orders rose at the fastest rate for six months, prompting manufacturers to continue to expand capacity to meet demand. Foreign demand also picked up, with new export orders expanding at the fastest pace for nine months. The pace of job creation remained among the highest seen over the past decade. However, in a further sign that growth has peaked, business confidence dipped to the weakest since September 2017. Although optimism stemmed from stronger demand, some raised concerns surrounding the sustainability of the current sequence of new order growth.

The headline and details confirm that the US manufacturing sector continues to expand at a healthy pace. That said, comments by survey respondents suggest that things may not be as hot as the numbers suggest. In addition to concerns about slowing domestic demand, US manufacturers have to contend with weaker foreign demand.

Weakest growth in Eurozone manufacturing since August 2016

Eurozone manufacturing PMI signalled the continued growth slowdown of the single currency area’s manufacturing economy. Although remaining above the crucial 50.0 no-change markfor a sixty-fifth month running, the PMI came in at 51.8 in November, fell from 52 in October, pointing to the weakest growth in the manufacturing sector since August of 2016 with weakness centred on the investment goods sector. Production rose only marginally as demand continues to falter; new orders fell slightly; export trade declined for the second month; and job creation was the weakest since September 2016. Finally, business confidence remained little changed from October’s near six-year low, mainly due to concerns over trade and the future performance of the autos industry and political worries. November’s PMI data underscore the extent to which manufacturing conditions have become more challenging, indicating that production could act as a drag on the Eurozone economy in the fourth quarter.

The euro area’s ‘big-four’ economies posted the lowest manufacturing PMI readings of all countries covered by the survey during November. Most notably, Italy recorded a second successive monthly deterioration in manufacturing operating conditions, registering its lowest PMI reading in nearly four years. France saw growth ease towards stagnation, whilst Germany saw its weakest expansion in over two-and-a-half years. In contrast, Spain saw a slight improvement in growth, whilst there were also stronger gains seen in Austria, Greece and Ireland. The Netherlands continued to register the highest expansion, despite the pace of growth slipping to its lowest in over two years.

UK manufacturing remains subdued

The November PMI provided a lacklustre picture of the UK manufacturing sector, as ongoing global trade tensions and Brexit uncertainty weighed on current business conditions and dampened the outlook for the year ahead. The IHS Markit/CIPS UK manufacturing PMI rose to 53.1 in November, up from October's 27-month low of 51.1. However, the performance of the sector remained comparatively lacklustre, with the latest PMI reading still among the weakest registered over the past two-and-a-half years. Although November saw the headline PMI regain some lost ground and trends in output, new orders and employment picked up slightly from a weak October, growth is still among the weakest seen over the past two-anda-half years. Based on its relationship against official ONS data, the survey indicators suggest manufacturing output is on course to make no contribution to GDP growth in the final quarter, with a clear risk of output contracting unless December proves a stronger month. Although still forecasting growth for the year ahead, manufacturers’ confidence fell to its lowest ebb since August 2016.

China manufacturing sector stalls in November

China’s manufacturing activity continued to worsen, underscoring concerns about a slowing domestic economy and the uncertainty of what will happen in the trade war. China’s manufacturing sector failed to expand for the first time in more than two years in November, as US imposed tariffs tightened their hold on the world’s second-largest economy.

The official PMI released by National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) fell to 50.0 in November of 2018 from 50.2 in the previous month. It was the lowest reading since a contraction in July 2016, as output rose the least in nine months (51.9 vs 52.0 in October), new order growth slowed further (50.4 vs 50.8), and new export orders shrank for the sixth straight month (47.0 vs 46.9).

Meanwhile, the Caixin/IHS Markit manufacturing PMI reading for China pointed to a marginal improvement in Chinese manufacturing operating conditions. The headline manufacturing PMI was little-changed from October’s reading of 50.1 at 50.2 in November. This signalled a further fractional improvement in the health of China’s manufacturing sector. The sub-index for new orders continued to rise, pointing to improved demand, which may be due to a recent raft of government policies aiming to support the private sector. The gauge for newexport orders dropped further into contractionary territory in November, indicating the impact of the Sino-U.S. trade friction on exports. The measure for future output, which reflects manufacturers’ production outlook over the next year, stayed in positive territory and rose modestly, suggesting business confidence was relatively stable.

China’s export growth will probably weaken over the next few months – partially a consequence of the rush to ship items now before the heftier tariff rate kicks in. China has been embroiled in a scathing trade war with the US in recent months, affecting manufacturing demand as goods get more expensive. The US has hit a total USD250bn worth of Chinese goods with tariffs since July, and China has retaliated by imposing duties on USD110bn of US goods. Over the weekend, both countries called for a truce on their tariff war at the G20 Summit. US President Trump will postpone the plan to raise tariffs on USD200bn worth of Chinese goods from 10% to 25% coming January 1. Chinese President Xi Jinping on the other side of the bench agreed to an undisclosed amount of increase in their purchases of US industrial, energy and agricultural products. Both sides aim to reach an arrangement on a broader trade agreement within 90 days.

Japan's manufacturing eases in November

The manufacturing sector in Japan continued to expand in November, albeit at a slower pace, with a manufacturing PMI score of 52.2, down from 52.9 in October. The latest reading for the headline index was the lowest since August 2017. Weighing on the overall rate of improvement were slower rises in production and new orders. Export orders also increased at a weaker rate amid reports of softer demand from China and Europe. Overall, growth in the sector was sustained, as has been seen since September 2016. However, expectations for future growth were reduced, with business confidence towards the year-ahead sliding for a sixth straight month to the lowest in two years.

ASEAN manufacturing rebounded

ASEAN manufacturing conditions saw a marginal improvement in November as output grew at the quickest pace since June, coupled with the new orders expanded. The headline ASEAN manufacturing PMI rose from 49.8 in October to 50.4 in November, signalling a slight improvement in the health of the manufacturing sector. The latest data followed the first decline in performance in ten months during October, suggesting a modest rebound of ASEAN manufacturing growth. However, the rate of growth was still weaker than those seen earlier in the year, as overall orders increased only fractionally. Meanwhile, export demand continued to deteriorate in line with the global trade slowdown.

Only some countries saw operating conditions improve at a quicker rate in November, with Vietnam performing the best of all with manufacturing PMI rose to 56.5 in November, up from 53.9 in October. The Vietnamese manufacturing sector continued to defy recent signs of slowing demand elsewhere in the global economy during November, seeing a strong and accelerated increase in new orders and a near-record rise in output in over seven years.

The Philippines came second in the rankings with a solid rate of expansion that was similar to October. Manufacturing PMI in the Philippines rose from 54.0 in October to 54.2 in November, signalling another notable improvement in the health of the manufacturing sector. The index has now risen for four consecutive months, with the latest reading an 11- month high. Myanmar rose in the league table to third place, as softer inflationary pressures allowed the sector to rebound from October’s decline as the PMI rose from 48.0 in October to signal the first improvement in operating conditions across Myanmar’s manufacturing sector since May. Indonesia slipped to fourth place as growth slowed to a five-month low with manufacturing PMI dipped to 50.4 in November from 50.5 in October. Thailandremained in fifth position although manufacturing PMI rose from 48.9 in October to 49.8 in November. November PMI data set the scene for the weakest quarterly performance in Thailand’s manufacturing sector in two years.

Malaysia’s manufacturing sector deteriorated at the fastest pace since May to 48.2 in November from 49.2 in October. Singapore stayed at the bottom of the rankings with the manufacturing PMI of 47.4, albeit with conditions worsening at a slower rate than in October.

Source: BIMB Securities Research - 4 Dec 2018