Cause for alarm: Inventory pile-up feared over June PMI dip

Demand simply isn’t strong enough.

Manufacturers across the island must be frowning over their unsold stock, as the country’s purchasing manager’s index (PMI) slipped 50.5 points in June from 50.8 points in May.

According to DBS, the 0.3 dip could be attributed to weakening demand for new orders.

“Except for the inventory and stock of finished goods indexes, which have inched higher, key sub-indexes such as production and new orders, moderated further. Well, if demand is weakening, inventory stock will
build up and manufacturers have to calibrate their production downwards,” stated DBS.

Here’s more from DBS:

Manufacturing continues to run sideways, as expected. Electronics PMI was up 0.3-pt but headline manufacturing PMI was down 0.3-pt. The outcome for June PMIs was mixed but that’s exactly what we meant when we said market will be a bit disappointed as things will more likely run sideways than upwards, which market was predicting.

However, electronics PMI rose a tad to 50.7, from 50.4 previously. Not a lot to brag about indeed and there are signs of a mild restocking in the process. New export orders and production indexes are up by a mere 0.1-pt.

Inventory is being run down while the stocks of finished goods continue to pile up. What this implies is that demand hasn’t been strong enough to warrant a major ramp up in production.

In short, our view of a sideways move in the manufacturing output remains in place. If demand is never strong to begin with, production can’t be heading anywhere.