Singapore factory activity stays in contraction in November, though PMI is up

SINGAPORE'S factory activity stayed in contraction for the seventh straight month in November, though improving from October with the Purchasing Managers' Index (PMI) rising 0.2 point to 49.8. A reading of below 50 on the index indicates contraction.

The latest reading was boosted by faster expansion in factory output and inventory, and slower contraction in new orders, new exports, and employment, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the index.

The order backlog index rose into expansion after 13 straight months in contraction.

"Despite improved data indicating possible bottoming of the manufacturing sectors, companies remain concerned about further escalation of the global trade war into the new year," said SIPMM vice-president for industry engagement and development Sophia Poh.

Said UOB economist Barnabas Gan: "The latest PMI data reinforces our outlook for some stabilisation in Singapore's manufacturing environment."

Coupled with October's "encouraging" industrial production data, with output up 4 per cent year on year and 3.4 per cent on a seasonally adjusted month-on-month basis, the "sustained uptick" in PMI suggests that the manufacturing industry has likely bottomed in the third quarter, he added.

But OCBC Bank head of treasury research and strategy Selena Ling cautioned: "It is possible that after the seasonal Christmas orders, we may see a bit of a slowdown again in Q1 2020. The domestic manufacturing sector may see modest positive growth in 2020, but we do not expect a sharp V-shape recovery at this juncture."

The electronics sector PMI, though in contraction for the 13th straight month, improved 0.4 point to 49.7 due to slower contraction of new orders, new exports, factory output, and employment, and faster expansion of inventory. The order backlog index improved, but was still in contraction for the 19th straight month.

For both the overall and the electronics PMI component indices, imports and input prices saw faster expansion but finished goods and supplier deliveries saw slower expansion.

In the region, the IHS Markit Asean manufacturing PMI similarly improved while staying in contraction, with only Vietnam seeing greater expansion. Myanmar and the Philippines stayed in expansion but at a lower rate. Thailand fell into contraction and Malaysia's contraction worsened. Indonesia stayed in contraction, though improving.

Nonetheless, the statement noted: "Asean manufacturers were optimistic that output would rise over the next 12 months in November. The level of positive sentiment strengthened to the highest since June."

China's Caixin PMI saw marginally higher expansion, while its official PMI rose out of contraction. Both Taiwan and South Korea stayed in mild contraction, with the former's PMI unchanged and the latter's reaching a seven-month high.