Singapore August factory activity slows but some bright signs

20130904-st-sg-aug-factory-activity-slows-but-some-bright-signs-pic A SLOWDOWN in momentum of Singapore factory activity last month has underpinned expectations of muted manufacturing activity in the rest of the year.

The Purchasing Managers' Index, an early gauge of industrial output, came in at 50.5 last month - down from July's 51.8 and below forecasts of a 51.9 reading.

This means factory activity continued to expand - as shown by the above-50 reading - for the sixth month running, but unexpectedly fell sharply from July.

Overall new orders fell last month, as did production, imports and employment, dragging the index to its lowest level since January.

But there were bright signs too. New export orders rose to the highest since April 2011, said Ms Janice Ong, executive director of the Singapore Institute of Purchasing & Materials Management, which publishes the index.

This suggests "external demand is actually picking up", and is in line with improved factory activity in the United States, euro zone, China and Japan, said OCBC economist Selena Ling.

A separate index also showed that electronics production gathered steam last month on a jump in new orders and new export orders, which were also the highest since May 2011.

With firm orders of electronics now exceeding finished goods by a bigger margin, "visibility of a tech recovery has improved markedly", said CIMB economist Song Seng Wun.

A rebound in electronics could lend some "near-term support to offset the volatility of the biomedical cluster", added Ms Ling.

But the overall picture for the manufacturing sector is still mixed. DBS economist Irvin Seah expects the outlook for Singapore manufacturing "to remain tepid in the coming months" with the sector likely to log lower activity this third quarter.

"It appears that manufacturers have remained cautious and prefer to run down their inventories and stocks of finished goods," he noted, adding that the drop in imports and employment also reflect factories' "conservative stance".

Globally, manufacturing appears to be stabilising, said Mr Song. In Asia, the indices for Australia, Japan, China, Taiwan and South Korea rose last month, although India and Indonesia fell alongside Singapore. "We expect order flows to strengthen in the seasonally stronger part of the year, barring external shocks."

Source: Straits Times, 4 Sep 2013