Vietnam Manufacturing PMI released by Nikkei, which summarizes the performance of the manufacturing industry, fell from 50.5 in September to 50 in October, marking the end of the 46-month sequence of growth.
The cause of the decrease in PMI in October mainly came from intermediate goods manufacturing companies. Although the number of new orders continued to increase, the growth rate was very small after a slowdown for the third consecutive month, becoming the weakest growth in the recent increase period starting in December 2015. A number of companies surveyed said that their customers wanted to reduce the size of their orders. The same thing happened with the number of new export orders as the growth rate slowed down.
Weaker customer demand has caused manufacturers to reduce production for the second month in a row as of October. However, the decline was mild and almost equal to September. Staffing levels also experienced a cut-down for the second consecutive month. Although modest, the reduction rate in job opportunities in the field of purchasing is the highest since March 2015. Decreased operating capacity has led to a fourth increase in backlog in the past five months. Purchasing activity remained unchanged in October, thereby ending the 46-month sequence of growth.
Some manufacturing companies have increased their purchasing activities to accommodate the increase in number of new orders, but others have had to reduce the purchase of input goods because of declines in output requirements.
There have been several reports of problems with material supply in October leading to increased input prices, and extended supplier's delivery time. The input costs increased slightly to a five-month high, but still below the average of the index history. In response to the climb in input prices, manufacturers have raised output prices for the first time in 11 months. However, this increase is small because weak customer demand has limited the pricing capacity.
The fall in output has affected inventory levels in October. The decline in demand for input goods in production activities has led to an increase in purchased inventory. Meanwhile, the decline in output resulted in a decrease in finished product inventories, after having increased in September. Moreover, the pace of decline was the fastest since March 2016. Business optimism has bounced back from the 13-month low recorded in September to August’s level. Companies are confident that production will increase next year, and optimism is often attributed to rising market expectations.
Commenting on the manufacturing PMI of Vietnam, Andrew Harker, Deputy Director of IHS Markit, which conducted the survey said: "The stagnant phase of the Vietnamese manufacturing sector continued in October when manufacturers showed reluctance to take on extra staff and purchase inputs while the number of new orders was growing small and demand in the world was declining. It should be noted that the historical relationship between Vietnam's PMI and official data shows that even if the index was 50, it can still turn into a strong growth according to the official data. Well, what we seem to be witnessing right now is a decline in growth rate, not anything else of concern. "