Taiwan manufacturing PMI increases 2.3 points to 59.8

Posting 59.8 in October, the latest Purchasing Managers’ Index for the Taiwanese manufacturing sector rose solidly above the 57.5 recorded in September. This indicated a marked improvement in business conditions during the month, with the rate of expansion accelerating solidly since September to the steepest in two years.

Substantial growth in new order levels was reported in October. Moreover, the increase in new business accelerated robustly since September to a two-year high. Overall new order growth was driven by improved domestic and foreign demand.

Subsequently, manufacturers in Taiwan reported a steep rise in output levels in order to accommodate higher order volumes. Output has grown in each of the past eight months, with the current rate of expansion the fastest in two years.

To support higher production, purchasing activity increased substantially, rising for an eighth consecutive month. However, some panelists indicated that they were buying materials in advance of expected output requirements. Nonetheless, stocks of purchases continued to decline, albeit only slightly, as manufacturers utilized existing inventory for current production requirements.

Employment levels rose robustly in October, reflective of increased output. The sustained rise in staffing volumes extended to four consecutive months. However, enhancements in production capacity were insufficient, with backlogs expanding markedly.

Suppliers’ delivery times lengthened markedly during October, reflective of the substantial rise in purchasing activity. It was also noted that shortages of raw materials had also delayed delivery, therefore increasing lead times.

This was also evident from the Input Prices Index, which signaled a rise in purchase costs for a fifth successive month. Taiwan manufacturers commented that vendors had increased their prices due to higher demand, but also as a result of shortages of materials.

Output prices rose for a second month running, although the rate at which charges increased was marginal, suggesting that manufacturers in Taiwan continued to experience pressure on margins. Where output prices were reported to have risen, this was attributed to higher costs.

Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “Taiwan's economy is on a rebound. With the headline index pushing further into positive territory, GDP will likely post another strong reading for the fourth quarter. Apart from the ongoing recovery in the labor market, with the HSBC PMI sub-index on employment above 50 for the fourth consecutive month, new export orders had another strong showing, underlining the recovery in the global trade cycle. Taiwan's economy has surprised in recent months in part because of unexpected strength in global tech demand, to which the island's economy is especially sensitive. Encouragingly, while input prices are rising, the HSBC PMI output price sub-index tracked above 50 for the second month in a row, suggesting that Taiwanese firms are gradually regaining pricing power.”