A garment factory of the Maxport Limited Vietnam in Thai Binh province. (Photo: VNA) S&P Global saidthat after improving in August, overall business conditions in the Vietnamesemanufacturing sector declined marginally in September.
Underlying datapointed to a strengthening demand environment and growing business confidence,but also a degree of spare capacity in the sector which led to reductions inoutput and employment. Rates of inflation gathered pace, with both input costsand output prices rising more quickly at the end of the third quarter.
The PMI stood at49.7 points in September, back below the 50.0 no-change mark following areading of 50.5 in August. The index thereby signalled a deterioration inbusiness conditions for Vietnamese manufacturers, albeit one that was onlymarginal.
The most positive aspect ofthe latest survey was a second successive monthly increase in new orders, withthe rate of expansion broadly in line with that seen in the previous surveyperiod. A number of respondents signalled that strength in new export orders,particularly from other Asian economies, had helped to boost total newbusiness. The rate of expansion in new sales from abroad was solid and morepronounced than that seen in August.
Despite thecontinued pick-up in demand, manufacturers signalled that new order receiptsremained relatively modest, leading to a scaling back of production. Output wasdown slightly following August's rise, with production now having fallen in sixof the past seven months. The overall contraction in output was centred onintermediate goods producers, while the consumer and investment goodscategories recording expansions, according to S&P Global.
It said that a furtherreduction in backlogs of work in September signalled that manufacturersmaintained sufficient capacity to cope with current workloads. As such, thereremained a reluctance to hire additional staff. Employment decreased for theseventh month running. Although modest, the rate of job cuts was the mostmarked since June.
Whilemanufacturers lowered their staffing levels, they did expand their inputbuying. Purchasing was up for the second month running in response to growth ofnew orders and plans to increase output in the coming months.
These expansion plans werealso evident in data on business confidence, which strengthened for the fourthconsecutive month and was the highest since February. Firms expect new ordersto improve further, thereby leading to output growth. Around 45% of respondentspredicted output to rise over the coming year, against 7% that werepessimistic.
Although demand for inputsstrengthened again in September, suppliers continued to speed up theirdeliveries. Lead times shortened for the ninth consecutive month, albeit to theleast extent since April.
Stocks of both purchases andfinished goods decreased at the end of the third quarter, in both cases for thefirst time in three months. Stocks of finished goods were used to help meet newexport orders.
“The picture was mixed in theVietnamese manufacturing sector during September. On a positive note, firmscontinued to see demand pick up, with a particularly encouraging rise in neworders signalled. This fed through to greater confidence in the year-aheadoutlook,” said Andrew Harker, Economics Director at S&P Global MarketIntelligence.
"On the otherhand, there is clearly still some excess capacity in the sector, which meantthat firms continued to lower employment and also scaled back output slightly,opting to use the inventories that had been building up in recent months tohelp meet new orders,” he noted.
Harker added that shoulddemand continue to pick up, this should feed through to growth across thesector. If the recovery in new orders loses steam, however, firms will remainreluctant to expand capacity too quickly./.
VNA
