Singapore PMI edges up again in Aug, but still in contraction

SINGAPORE'S manufacturing sentiment edged up marginally in August, though staying in contraction for the fourth straight month. The Purchasing Managers' Index stood at 49.9, up 0.1 point from July's 49.8 reading, which was in turn an improvement from June's 49.6. A reading over 50 indicates expansion, while one under 50 indicates contraction.

The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the data, attributed the slight improvement to increased expansion in new orders and factory output, as well as slowing contraction in inventory.

However, the new exports index dipped into contraction for the first time since August 2016. Imports, input prices, finished goods, and supplier deliveries saw slower expansion. Order backlog stayed in contraction for the 11th straight month, and employment for the third.

Continued contraction in the employment index suggests "caution in hiring intentions amid the ongoing US-China trade war and dampened global growth prospects", said OCBC Bank head of treasury research and strategy Selena Ling.

Despite ongoing global trade uncertainties, anecdotal evidence suggests that foreign manufacturers are exploring opportunities to collaborate with local manufacturers to overcome the high tariffs imposed on their countries, said SIPMM vice-president for industry engagement and development Sophia Poh.

UOB economist Barnabas Gan saw the overall PMI improvement as providing "some cautious optimism" that Singapore’s manufacturing sector may stabilise in the third quarter.

He expects industrial production to expand 0.9 per cent year in year in August, turning around from a 0.4 per cent contraction the previous month, and to be flat for the full third quarter. In contrast, OCBC's Ms Ling expects Singapore's industrial production to contract by 2.1 per cent in the third quarter, assuming no further deterioration in US-China trade relations.

The electronics sector PMI was in contraction for the 10th straight month at 49.4, though up 0.1 point from July. New orders, inventory, and employment contracted at a slower rate.

However, electronics factory output and new exports contracted faster. Input prices and supplier deliveries expanded slower, while the order backlog saw its 16th straight month of contraction.

In the region, headline Asean PMI fell deeper into contraction, as did Taiwan's. Singapore, Malaysia, and Indonesia saw contraction; Thailand's reading of 50 indicated no change; while Vietnam, the Philippines, and Myanmar saw expansion.

In contrast, the Caixin China PMI recovered from contraction in August, rising to 50.4. South Korea's PMI remained in contraction, though improving.

The mixed regional picture suggests "stabilisation at best if not still modest slippage", said Ms Ling. "Barring the materialization of the US-China face-to-face trade talks that are expected to resume in Washington later this month, there is little prospect of a near-term pick-up heading into the seasonal Christmas period," she added.