Manufacturing sector shows signs of recovery in August

PETALING JAYA: Malaysia’s manufacturing sector showed signs of recovery in August 2017, registering the first expansion in production and overall improvement in operating conditions since April.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose above the 50.0 no-change mark to 50.4 in August, up from July’s 48.3.

IHS Markit said although total new orders continued to fall, the rate of contraction softened against a backdrop of rising exports.

Firms expanded workforce numbers, which enabled them to keep on top of overall workloads, while indicating a preference for destocking by opting to deplete inventories of both inputs and finished goods.

“Cost pressures continued to ease, whilst business optimism was its highest since December 2013,” IHS Markit said, highlighting that manufacturing output rose in 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. In particular, firms highlighted growing demand from foreign markets in China, Southeast Asia and the Middle East.”

Meanwhile, purchasing activity fell for the fourth consecutive month in August as the still- underwhelming trend in overall sales encouraged firms to utilise existing stocks of purchases for production.

Workforce numbers continued to grow in August, citing positive demand projections as the primary reason for the expansion.

Commenting on the Malaysian Manufacturing PMI survey data, IHS Markit director Paul Smith said August’s survey painted a stronger picture of the Malaysian manufacturing economy compared with previous months, with overall operating conditions improving for the first time in four months.

“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. 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.”