Manufacturing PMI fell to 50.1 in March 2011

The decline in the overall PMI was attributed to a first-time contraction in new orders as well as a lower level in new export orders.

According to Singapore Institute of Purchasing & Materials Management, the electronics PMI also declined 1.3 points over the previous month to 51.3.

The readings indicated slower growth in new orders from both the domestic and overseas market, as well as lower levels in production output, imports and input prices.

The March manufacturing PMI and electronics PMI suggest that manufacturers' sentiment has weakened significantly, said OCBC.

According to the bank, the decline in the manufacturing PMI is relatively significant at 2.2 points and now stands just above the threshold 50 level which separates expansion from contraction territory. What’s worrying is the first-time contraction in new orders (down 3.7 points to 49.1), and lower new export orders (also down 1 point to 50.1), while the production, import and order backlog gauges are similarly in contraction territory.

This does not bode very well for manufacturing activity in the coming months, and may not have fully factored in the fall-out from the Japanese disruptions to production networks.

Moreover, the domestic PMI readings look more severe than the recent manufacturing PMI readings out of China (official: 53.4, private sector: 51.8), Taiwan (55.6) and India (57.9).

The electronics PMI which also unexpectedly fell from 52.6 in Feb to 51.3 (forecast:52.8), but the sentiment looks slightly more resilient for new orders, new export orders for now.

However, global leading indicators like the US semiconductor book-to-bill ratio have also fallen below 1x since Oct 2010, which may suggest further deceleration in electronic demand.

Again, OCBC is watching for any disruptions to Japanese semiconductor component manufacturing.