Taiwan manufacturing remains strong, but PMI dips to 60.7

The headline HSBC Taiwan Manufacturing Purchasing Managers’ Index (PMI) posted 60.7 in April, falling modestly from March’s reading of 62.7. However, this indicated a substantial improvement in business conditions within the Taiwanese manufacturing sector, with the latest growth the thirteenth in successive months.

Incoming new business received by manufacturers in Taiwan increased during April, although the rate of new order growth slowed since March. Nonetheless, the increases in both new export orders and overall new business remained sharp, and strong in the context of historical data. China, Europe and the United States were all cited as sources of overseas sales in April.

Output growth weakened modestly since March, reflecting the lower rise in overall new orders. However, a further steep increase in backlogs of work suggested that the expansion of production was not sufficient to meet new order obligations.

Despite the rise in outstanding business, stocks of finished goods also increased during April. Manufacturers commented that they were aiming to rebuild stocks, although as some utilized these to help fulfill order obligations, the overall rise in inventories was marginal.

Employment within the Taiwanese manufacturing sector increased markedly during April. The rise in staffing levels reflected the need to increase operating capacity in line with higher new order volumes.

April data signaled that input cost inflation continued to build. Higher raw material prices, driven by the short supply of certain items, led the considerable rise in costs faced by manufacturers in Taiwan. Subsequently, output prices were increased further during the month, and at a historically sharp rate.

Purchasing activity increased substantially during April, reflecting both the growth in output requirements and also further anticipated rises in input costs. Stocks of purchases increased for a fourth successive month, as manufacturers aimed to rebuild inventories.

Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “After a strong quarter of growth, the Taiwanese economy appears to have cooled slightly. Still, the pace of expansion remains comfortable, and a steady increase in employment, even if at a reduced pace than in the first quarter, should help underpin consumption growth. Input costs continue to rise rapidly, but so far, the pass-through to output prices remains relatively limited, alleviating concerns about price stability.”