KUALA LUMPUR (June 4): Malaysia's manufacturing sector conditions improved midway through the second quarter of 2024, supported by renewed growth in new business and production.

In a statement on Tuesday, S&P Global Market Intelligence said job creation also unfolded for the first time in five months, although firms were cautious with acquiring inputs as the expansion in new orders was only marginal.

Meanwhile, it said business confidence waned.

On the price front, the rates of inflation for input costs and output prices both increased in May, but remained subdued compared to their respective series averages.

The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers index (PMI) rose to 50.2 in May, up from 49.0 in April.

Posting above the 50.0 neutral mark in May, the latest data signalled a renewed improvement in manufacturing sector conditions, following 20 months of moderation.

The latest PMI reading suggested that gross domestic product (GDP) growth was running at a slightly improved rate than that seen in the first quarter of 2024, as well as pointing to modest year-on-year improvements in official manufacturing production data.

Production levels returned to expansion for the first time since July 2022, albeit only marginally.

This was underpinned by renewed growth in new orders, marking an end to 20 successive months of subdued demand conditions.

Better underlying demand was behind the rise in new work, according to survey panellists.

Export orders rose as well, and at the most pronounced pace in just over three years, with manufacturers reporting higher inflows of new work from the US, Europe, Middle East and other parts of the Asia-Pacific region.

S&P Global said to cope with rising workloads, Malaysian manufacturers hired additional workers in May. This marked the first rise in manufacturing headcounts since the end of 2023.

Although marginal, the rate of job creation was the fastest in just over a year.

Greater workforce capacity thereby enabled firms to work through their backlogged orders, as the level of unfinished business lowered modestly in May.

Purchasing levels remained subdued, despite greater inflows of new work.

This reflected the relatively muted growth of new orders, with firms remaining cautious in terms of their inventory holdings as a result.

The reduction in purchasing activity and rising production levels led to stocks of purchases further declining in May.

Stocks of finished goods also fell, though here it was attributed to outbound shipments of goods for order fulfilment.

Average input prices, meanwhile, continued to rise in the Malaysian manufacturing sector, extending the sequence of inflation to four years.

According to survey respondents, higher input material, transport and financing costs were factors contributing to sustained cost inflation in May.

In turn, Malaysian manufacturers raised their selling prices in May to reflect the rise in cost burdens.

Both the rates of input cost and output price inflation inched up in the latest survey period, even as they remained below their respective series averages.

Meanwhile, the survey's Suppliers' Delivery Times Index showed a slight lengthening of lead times because of congestions at ports.

Finally, sentiment in the Malaysian manufacturing sector was shown to be positive midway through the second quarter. Better demand conditions in May inspired hopes of further improvements in the year ahead.

That said, the level of confidence eased to a nine-month low, and was below the series average.

S&P Global economics associate director Jingyi Pan said the latest PMI data revealed that business conditions in the Malaysian manufacturing sector started to improve again midway through the second quarter of 2024.

Pan said this indicated a turnaround from the period of subdued conditions previously, and hinted at an acceleration of growth in GDP into the second quarter.

"It was encouraging to see employment conditions improve, with manufacturers acquiring more headcounts on account of rising new orders.

“And while the expansion in new orders and production was accompanied by rising inflation, the rates of increase in both input costs and output prices were subdued by historical standards.

"Overall sentiment also stayed positive, with firms expecting higher output in the coming year. That said, the level of confidence eased, and affected manufacturers' willingness to acquire input inventories. These will be areas to monitor for further signs of a turnaround,” said Pan.