Taiwan manufacturing sector deteriorates for third successive month

Markit Research

The HSBC Taiwan Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snap-shot of the health of the manufacturing sector – posted 48.6 in October, a marginal decrease from September’s reading of 49.0. This was the third straight month where a worsening in business conditions has been indicated, with the latest deterioration the strongest in that sequence.

Taiwanese manufacturers reported a solid reduction in new business received during October. The rate at which new orders contracted slowed fractionally for a second successive month, although remained in stark contrast to the long-run average for the series (which signals marked growth). New business received from export markets also decreased, albeit the extent of the decline eased more notably during the month.

Output contracted for a fourth straight month. The pace at which production has fallen has been broadly flat since August.

Backlogs of work decreased for a second consecutive month in October, signaling that a degree of excess capacity persisted at manufacturers in Taiwan as new orders continued to decline.

October data indicated that the rise in employment at Taiwanese manufacturers had drawn to a near-standstill, as the relevant index posted only fractionally above the 50.0 no-change threshold.

In line with decreases in output and new orders, purchasing activity reduced during October, with panelists looking to deplete stocks of purchases. Despite this, delivery times continued to lengthen due to short supplies of materials and insufficient capacity at vendors.

Input costs faced by manufacturers in Taiwan increased considerably during October. Many panelists attributed the latest rise in costs to higher raw material prices. However, some companies also noted that unfavorable variations in the value of the yen had impacted on input costs. Output prices also increased, and to the greatest extent since May. However, the rise was relatively weak compared to the increase in costs.

Commenting on the Taiwan Manufacturing PMI survey, Donna Kwok, economist at HSBC in Asia, said: “Taiwan is encountering more turbulence from the global tech cycle. Jobs are still being created, but choppy external conditions and the resultant hit on output and orders is starting to hold back headcount growth. In order to keep the island’s domestic demand recovery on track, we thus expect the authorities to err on the side of caution where rates normalization is concerned, at least for another few quarters.”

Subscribe to Reliable Plant