PMI falls to three-year low in September

Manufacturing output was hit by weak demand from both local and export markets.

The manufacturing sector fell to its lowest since July 2016, with Singapore’s manufacturing Purchasing Managers’ Index (PMI) contracting faster by 0.4 ppt to 49.5 during the month, according to the Singapore Institute of Purchasing and Materials Management (SIPMM).

Also read: PMI edges up 0.1 to 49.9 in August

Faster rates of contraction were particularly observed in both employment and new exports. New orders and new exports fell to 49.8 and 49.7, respectively, their lowest since August 2016.

Employment plummeted to 49.2, surpassing that recorded in October 2016. Factory output returned to 49.9, similar to June 2019’s number. Specifically, faster rates of contraction were also seen in both Employment and New Exports.

The order backlog index has now recorded contraction for the 12th consecutive month, SIPMM said.

September’s PMI marks the fifth straight month of decline. A reading above 50 indicates growth whilst a reading below 50 indicates contraction in the sector.

“The prolonged uncertainties in the major global markets have weakened demand and increased cost pressures on local manufacturers, and are further aggravated by disruptive global supply chains,” said Sophia Poh, vice president, industry engagement and development, SIPMM.

The Electronic sector contracted for the 17th consecutive month, recording 49.1 in September, the lowest level since June 2016. This marked its 11th straight month of contraction. New Orders and Factory Output fell to their lowest since June 2016 at 48.9 and 49, respectively. Employment recorded 49.1, lowest since May 2016. On the other hand, New Exports edged up to 49.3, a slight improvement from August’s 49.2.

“The latest reading was attributed to a faster contraction rate in new orders index despite a slower contraction rate in new exports index. The reading was also dragged lower by faster contraction rates in the indexes of both employment and factory output,” SIPMM said.

However, SIPMM noted that Inventory, Finished Goods, and Imports, reverted to expansion readings. Supplier deliveries index posted a faster expansion rate whereas input prices index posted a slower expansion rate, the report added.

UOB believes that contraction will continue in Singapore’s manufacturing sector, where a negative growth of around -4.5% YoY or more will more likely trigger a technical recession.

“Translating these back to Singapore’s manufacturing production, we note that Singapore’s industrial production had disappointed with 8.0% YoY contraction (-7.5%
MoM) in August 2019. In addition, Singapore’s manufacturing momentum has been accurately led by the SIPMM PMI for the last four months, seen from the contraction in industrial production which corresponded with the sub-50 PMI prints during this period,” said UOB Economist Barnabas Gan.

Still, Gan noted that September’s output could be cushioned by the low base print seen in the previous year, where output grew merely 0.5% YoY in September 2018, the lowest growth recorded in that calendar year.