South Korea manufacturing PMI rises from 20-month low

November survey data, compiled by Markit for HSBC, indicated slight growth of the South Korean manufacturing sector. The HSBC South Korea Purchasing Managers’ Index posted 50.2, up from October’s 20-month low of 46.7. The improvement signaled by the latest figure was only slight, and weaker than the long-run average for the series.

The seasonally adjusted New Orders Index posted fractionally above the 50.0 no-change threshold in November, signaling a negligible rise in new work intakes. New export business increased marginally, in contrast to the previous survey period where a solid reduction was recorded.

November data indicated that output fell in the South Korean manufacturing sector, signaling that the negligible rise in overall new order volumes was insufficient to boost production. Moreover, backlogs of work decreased and at a stronger rate than in the previous survey period. This suggested that spare capacity at manufacturers persisted, with panelists attributing this to the recent reduction in new work intakes. Finished goods stocks were also depleted during the month, albeit at a weaker rate than in October.

South Korean manufacturers indicated that employment at their companies increased during November. Furthermore, the latest rise in headcounts was the strongest in three months. Panelists reporting an increase in staffing levels commented that this reflected a rise in new orders.

Suppliers’ delivery times shortened during November. This was the fourth successive month where an improvement in vendor performance was indicated, although the latest shortening in lead times was the weakest in this period. This was in line with a slight rise in purchasing activity during the month.

Input prices faced by manufacturers in South Korea increased markedly in November, with the latest rise in costs the fastest in four months. Higher raw material prices were cited as the main driver of input cost inflation. Subsequently, charges also rose, in contrast to the previous month. However, the extent of output price inflation was restricted by strong competition for new business.

Commenting on the South Korea Manufacturing PMI survey, Song Yi Kim, economist at HSBC in Asia, said: “HSBC's South Korea PMI points to a rebound in growth. Already, exports have re-accelerated after some slack over the summer months. A jump in consumer confidence for November suggests that household consumption will remain strong as well. This could fuel inflation, with price pressures already elevated due to rising raw material costs. Indeed, both input and output price indices of the HSBC PMI rose in November. The Bank of Korea will likely keep a close watch on these indicators, with monetary policy still poised for tightening in the coming months.”