PMI improves slightly to 46.8 in May

This is due to slower contractions in key indexes.

The Purchasing Managers’ Index (PMI) inched up by 2.1 points from the previous month to 46.8 in May compared to 44.7 the previous month, according to data from the Singapore Institute of Purchasing and Materials Management (SIPMM). This is now the fourth month of contraction for the overall manufacturing sector.

The latest PMI reading was attributed to slower contractions in the key indexes of new orders, new exports, factory output and employment.

The inventory index expanded for the first time after having contracted for 3 consecutive months, whereas the finished goods index reverted to an expansion after contracting for 2 consecutive months. Slower contractions were recorded for the indexes of imports, input prices, and order backlog. However, the supplier deliveries posted a faster rate of contraction.

The overall employment index for the manufacturing sector has now posted contractions for four consecutive months.

“The latest improved PMI readings indicate the resilience of the local manufacturing sectors. Going forward, manufacturers are cautiously optimistic of a gradual recovery towards the latter half of the year.” said Sophia Poh, vice president of industry engagement and development.

Similarly, the electronics sector PMI recorded an increase of 3.4 points from the previous month to post a slower contraction at 46.2. This is the fourth month of contraction for the electronics sector.

This is attributed to slower contractions in the key indexes of new orders, new exports, factory output and employment as the electronics inventory index reverted to an expansion after contracting for 3 consecutive months.

Meanwhile, the electronics finished goods continued to contract for the third month whilst electronics indexes of imports, input prices, and order backlog, recorded slower rates of contraction. Supplier deliveries index posted a faster rate of contraction.

UOB notes that there are some green-shoots observed from the expansion of the inventory index for the first time in three months, whilst finished goods rose above 50.0 after contracting for two months. Meanwhile, all sub-indices (except for deliveries) rose in absolute terms in May 2020, highlighting that some pessimism had dissipated.

“We also note that pharmaceutical production and exports may continue to support Singapore’s overall manufacturing and trade environment. Singapore is well- positioned to produce and export medical necessities, which implies that the pharmaceutical industry can act as a support to the overall manufacturing environment,” UOB’s economist Barnabas Gan stated.

However, UOB warns of further headwinds against Singapore’s manufacturing environment as other key manufacturing sectors could remain in the doldrums for the year ahead. This is despite the support from the biomedical manufacturing sector as pharmaceutical exports only account for 9.9% of NODX in 2019, whilst the biomedical manufacturing cluster is weighted at just under 20% of total industrial production.

“This suggests that any exacerbation of the COVID-19 pandemic will likely prove to be more detrimental than beneficial for Singapore’s manufacturing environment. Beyond the pandemic, we would also need to account for the renewed US-China trade tensions that may intensify in the months ahead,” Gan added.