Vietnam manufacturing signals improvement in December

The headline Nikkei Vietnam Manufacturing Purchasing Managers’ Index (PMI) posted 50.8 in December, a fraction lower than the reading of 51.0 in November and signaling a slight improvement in the health of the manufacturing sector, according to Nikkei and IHS Markit. 

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.

Business conditions have strengthened in all but one month since the end of 2015, the only exception being no change in October 2019.

New orders expanded for the forty-ninth month running at the end of 2019, linked by respondents to stronger customer demand. The rate of expansion was solid and the fastest in four months. The increase in total new business was registered in spite of a drop in new export orders, the first in just over four years.

Although new business increased, manufacturers noted a slight reduction in output. The dip was the third in the past four months, and attributed by some panelists to issues with production lines.

The combination of rising new orders and lower output led to a build-up of backlogs of work in December, extending the current sequence of accumulation to four months. Meanwhile, firms used inventories to help fulfil orders. As a result, stocks of finished goods decreased for the third successive month.

Manufacturers responded to higher new orders by expanding both their staffing levels and purchasing activity. Employment was up for the second month running, with the expansion centered on intermediate goods producers.

Input buying was also up for the second month in a row, albeit to a lesser extent than was the case in November. Suppliers' delivery times, meanwhile, lengthened marginally amid some reports from panelists of delays in the delivery of imported items.

Input costs rose solidly at the end of the year, with the rate of inflation quickening to a seven-month high. Respondents generally mentioned higher market prices for raw materials. That said, the rate of inflation remained weaker than the series average.

The passing on of higher input costs to customers led manufacturers to raise their selling prices during December. The increase was the second in the past three months, but only slight.

Plans for increasing production amid higher new orders meant that firms expect output to expand over the coming year. Around 39% of respondents predicted a rise in production, with sentiment unchanged from that seen in the previous month.

“The final IHS Markit Vietnam Manufacturing PMI of 2019 was largely positive, particularly with regards to new orders which increased at the fastest pace since August. While output ticked down, comments from survey respondents suggested that this was at least in part due to issues with production processes and so should hopefully prove temporary, especially if new business continues to rise solidly,” said Andrew Harker, associate director at IHS Markit, which compiles the survey.

"After enduring a soft patch in recent months, the Vietnamese manufacturing sector remains in healthy shape, with firms ready to take advantage of any opportunities that arise during 2020.”