Manufacturing sector’s optimism remains high as new orders weaken

KUCHING: Despite September’s Manufacturing Purchasing Managers’ Index ( PMI) dipping back down below 50, optimism within the manufacturing sector remained resilient as employment and manufacturing output continued to expand.

According to the research arm of Kenanga Investment Bank Bhd ( Kenanga), September’s PMI had fallen to 49.9 after August’s 50.4 reading – the first sub 50.0 reading after three consecutive months of above 50.0 readings.

The fall was mostly attributed to the drag from weak new orders which declined in both export and domestic orders that ultimately led to a subsequent lower stock of purchases.

In spite of the lower orders however, manufacturing output and employment were seen to continue expanding as Kenanga Research reports that industry players were still optimistic that new orders would improve in the next 12 months as they geared up for planned expansions.

And following that optimism, manufactures boosted their hiring activities in September, resulting in modest employment growth during the month.

With ample labour resources, backlog continued to decline for the fourth consecutive month, alongside a continued growth in manufacturing output.

“At the same time, respondents also reported continued decline in their stock of finished goods for the sixth consecutive month as they sought to streamline inventories,” added the research arm.

Not sharing the same optimism however, Kenanga Research is remaining cautious on the manufacturing sector expansion moving into 3QFY17.

“Our forecast on 2017 manufacturing IPI growth is 5.7 per cent. This will likely translate to a 5.3 per cent manufacturing GDP growth.

“Overall, we expect this to play out as relatively precarious growth trajectory for Malaysia with growth projected to taper off to 5.3 per cent for 3QFY17 after it jumped 5.8 per cent in 2QFY17 – its highest since 1QFY15,” it guided.

Besides this, the decline in PMI has also spurred some fear in the research arm as they speculate whether it merely represents a one-off moderation or something more ominous.