Decline in manufacturing activity temporary but rapid growth unlikely

That headline manufacturing PMI for October rose to the “expansion” level of 50.7 and electronics PMI rose by 0.8 pts to 49.3 might be news to celebrate about, but we should not get too excited about the numbers.

In a statement, DBS Bank said the October PMI numbers seem to suggest that the recent decline in manufacturing activity is far from being a one way bet. The manufacturing PMI was up 1.2 pts from the previous month and is no longer stuck in the contraction range after two months.

“Readings from the sub-indices show that general inventory levels and stocks of finished goods are falling while production, new orders and new export orders have generally improved. What this set of data implies is that demand is not quite as exhausted as what many have suggested and recent PMI numbers from key markets such as the US and China are showing similar trend,” the bank said.

It noted, however, that one or two months worth of data does not make a trend. “As the V-shaped recovery in Asia turns into a square root shape, we can expect such sideways moves in the PMIs around the 50 level in the coming months,” DBS said.

Although DBS said that another manufacturing doldrum is not bound to happen in the near future, it said that “weak recovery in the developed economies juxtaposed with the softer growth momentum in Asia could see industrial data turning increasingly flattish going forward.”