Nikkei Malaysia data show recovery in August manufacturing sector

PETALING JAYA: Improving business sentiments and rising exports helped in stoking recovery of the Malaysian manufacturing sector in August, according to data from the Nikkei Malaysia manufacturing purchasing managers’ index (PMI).

The PMI rose to 50.4 from a contraction of 48.3 in July, registering the first expansion of production and overall improvement in operating conditions since April despite total new orders continuing to decline. Rising exports helped to balance out the continued decline in new orders while business optimism was at its highest since December 2013.

A PMI reading below 50 indicates a contraction while above 50 indicates an expansion of the sector.

“Growth was underpinned in the main by an improvement in new export orders, which helped to bolster output, in turn shoring up confidence and driving employment higher,” IHS Markit director Paul Smith said in a statement.

He added that August’s survey painted a stronger picture of the Malaysian manufacturing sector compared to previous months, with overall operating conditions improving for the first time in four months.

“However, current growth seems a little precarious given the ongoing weakness in total sales, which continue to fall on the back of underwhelming domestic demand,” Smith said.

While firms continued to destock by opting to deplete inventories of both inputs and finished goods, they expanded workforce numbers in order to keep on top of overall work- loads. Manufacturers cited positive demand projections for the hirings.

Higher production and employment alongside falling new orders helped firms to reduce their levels of outstanding business. Backlogs of work were depleted for a third consecutive month, according to the latest survey.

The Nikkei Malaysia data showed that manufacturing output rose during August at the fastest rate since February. Although order book volumes failed to increase, the rate of contraction was the weakest since growth was last recorded in April whilst exports rose after a slight fall in July.

Firms surveyed by Nikkei Malaysia revealed growing demand from foreign markets in China, South-East Asia and the Middle East although purchasing activity fell for the fourth consecutive month in August. The still underwhelming trend in overall sales encouraged firms to utilise existing stocks of purchases for production. Inventories of finished goods also fell, although the rate of decline was the softest in the current five-month sequence of contraction.

Despite reduced acquisitions of raw materials and semi-finished goods, vendor performance worsened for a sixth month in succession.

The survey showed price inflation remained well below the average for this year easing to the weakest since last October and marking the sixth month where inflation has fallen since February’s record high. According to respondents, higher raw material costs were to blame for further price increases.