Manufacturing conditions in Malaysia deteriorated at a sharper pace in August

Posted on 01 September 2016

Source: The Edge

Manufacturing conditions in Malaysia deteriorated at a sharper pace in August, after having slowed in July, according to the latest Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI).

The headline PMI posted 47.4 in August, down from 48.1 in July (the highest reading since March), thereby signalling a sharper deterioration in operating conditions at Malaysian manufacturers.

In a statement today, Nikkei & IHS Markit said both production and new orders contracted at faster rates leading to a quicker decline in payroll numbers and a further reduction in input buying.

Meanwhile, they said input prices increased at the joint-fastest pace in 33 months and charges rose at a quicker rate.

The PMI is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50.0 indicates overall improvement of sector operating conditions.

The latest reading was lower than the average over the current 17-month period of figures below the crucial 50.0 no-change mark.

Sharper declines in output, new orders, employment and an improvement in suppliers’ delivery times all contributed to the lower figure.

Nikkei & IHS Markit said output at Malaysian manufacturers decreased for the seventeenth consecutive month in August.

They said over one-quarter of surveyed respondents recorded a fall in production compared to the previous survey period.

“A number of panellists mentioned a lack of new orders and challenging economic conditions.

“A fall in production was matched by a quicker decline in total new orders.

“Subdued demand conditions was commonly cited as the key factor behind the contraction in new work intakes. Data also suggested that a fall in international demand contributed to a decrease in total incoming new orders,” they said.

Nikkei & IHS Markit said international demand contracted for the third consecutive month in August.

“However, the rate of decline eased further from June’s 43-month record and was only marginal overall.

“Worsening operating conditions meant manufacturers were less optimistic towards hiring additional staff in August,” they said.

Nikkei & IHS Markit said the rate of job shedding was the fastest since April 2013.

“According to anecdotal evidence, firms cut back on payroll numbers as part of efforts to make cost savings.

“Manufacturers in Malaysia also cut back on their input buying. However, the rate of decline was the weakest in the current 15-month sequence of contraction,” they said.

On the price front, reports of greater imported raw material costs stemming from unfavourable exchange rates and the increase in sales tax led to a further rise in input prices.

In fact, cost inflation accelerated to the joint-second highest in the series history. As a result, manufacturers rose their charges at a stronger rate. 

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