Vietnam manufacturing output increase for first time in 3 months

The Vietnamese manufacturing sector returned to growth in November as output increased for the first time in three months and new orders expanded at a faster pace, according to Nikkei and IHS Markit. 

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) registered 51.0 in November, up from the neutral reading of 50.0 in October. The PMI signaled a marginal improvement in the health of the sector. Business conditions have now strengthened in all but one month across the past four years.

A reading below the 50 neutral mark indicates no change from the previous month, while a reading below 50 indicates contractions and above 50 points to an expansion.

Production increased for the first time in three months during November, following marginal reductions in September and October. Where output rose, panelists generally linked this to higher new orders, which expanded more quickly than in October.

New business has now increased in each month throughout the past four years. Improved customer demand and the securing of new clients were reportedly behind the rise in new work. Growth of new export orders also picked up in November. Employment rose for the first time in three months amid increased new orders. Despite greater capacity and a return to growth of production, firms reported another modest accumulation of backlogs of work.

Firms were helped in their purchasing efforts by a quickening of suppliers' delivery times, the first time this has been the case in four months. Stocks of finished goods, meanwhile, fell for the second month in a row. Some panelists indicated that they had used postproduction inventories to help meet new orders following slight reductions in output in previous months.

Business sentiment dipped from October, but remained positive as around two-fifths of respondents predicted an increase in output over the coming year. According to survey participants, optimism was centered on expected growth of new orders and efforts to expand capacity.

“Some positive news on the Vietnamese manufacturing sector was evident from the latest PMI dataset, with output up for the first time in three months and a return to employment growth signaled. This suggests that the recent soft patch may be coming to an end,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"Firms are still playing catch-up to some degree from restrictions to output and capacity in recent months, however, seeing backlogs of work continue to rise and needing to use stocks to help supplement production. This bodes well for trends in output and employment in coming months as firms continue efforts to meet ongoing rises in new orders.”