Manufacturing sector braces for headwinds as August PMI hits 7-month low

Sub-indexes fell across the board.

August marked the end of the good times for Singapore’s manufacturing sector. The country’s Purchasing Managers Index, a key barometer of local manufacturing economy, dipped into contraction level for the first time after registering 7 consecutive months of expansion

The headline number posted a reading of 49.7, a sharp retreat from 51.5 in July. Electronics PMI moderated to 50.7, from 52.4 previously.

According to DBS, sub-indexes such as new orders, production, inventory level and employment have all fallen. In addition, the stock of finished goods in electronics is building up.

“This suggests slower production in the next two months. Stock holding in the overall manufacturing sector has also remained fairly high. Overall, there are signs of slower manufacturing activities ahead. And this will have significant impact on broad macroeconomic growth momentum,” noted the report.

Here’s more from DBS:

The earlier strong showing in the PMIs can only be supported by sustained improvement in real demand. And that will require a marked improvement in global outlook, which currently still remains in question. The latest August PMI figure from China eased to 51.1, from 51.7 previously.

And PMI from the EUrozone has continued to slump. This latest set of Sngapore PMIs is merely a reflection of the outlook in the global economy. And it doesn’t look as rosy as what most people had predicted.

Moreover, the overhanging restructuring drag is still a concern. Margin erosion and the inability to compete effectively in the global arena due to cost pressure will continue to undermine the performance of the manufacturing sector in the quarters ahead.