Vietnam Manufacturing Sector Posts Slower Rise in Output Amid Drop in New Business

Latest PMI data suggested another slight loss of momentum in the Vietnamese manufacturing sector as output growth slowed and new orders fell slightly during August. Stocks of finished goods rose at a solid pace amid delays in delivering products to clients.

Transportation issues linked to the enforcement of weight restrictions on trucks also impacted on suppliers’ delivery times and contributed to another sharp rise in input prices.

The headline seasonally adjusted Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted 50.3 in August, down from 51.7 in July and falling for the fourth consecutive month to signal the
weakest improvement in business conditions since November 2013.

The rate of growth in manufacturing output eased again in August, and was the slowest in the current 11-month sequence of expansion.

Behind the weaker rise in output was a fall in new orders, the first in nine months. That said, the reduction was only marginal. Declining client demand was mentioned by those respondents that posted a fall in new work. New export business also decreased, ending a five-month sequence of expansion.

Falling new orders led backlogs of work to decrease for the fourth successive month, albeit only modestly. Lower new business also impacted on stocks of finished goods, which increased at the strongest pace in 13 months.

Some panellists also attributed the accumulation of inventories to delays in delivering products to clients.

Longer vendor lead times were again a feature of the sector in August as the enforcement of truck weight restrictions continued to delay deliveries. Lead times lengthened for the sixth month in a row, and at a broadly similar pace to that seen in July.

A further sharp rise in input costs was recorded during the month amid increased costs of transportation linked to the tonnage rules, and higher fuel costs.

That said, the latest rise in input prices was the slowest since April.

The passing on of higher cost burdens to clients led to a third successive monthly increase in output prices at Vietnamese manufacturing firms. However, the rate of inflation was only slight.

Staffing levels in the sector were unchanged on average during August. Some panellists reported having taken on extra staff to help support a rise in production, but others reported employee resignations, sometimes in search of increased salaries elsewhere.

Although purchasing activity continued to rise, the rate of expansion was only fractional and the weakest in the current year-long period of growth.

Some panellists reported having lowered their purchasing in response to falling client demand. A slower rise in input buying meant that pre-production inventories decreased marginally, ending a two-month sequence of accumulation.

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