Factory activity rose for the 10th straight month in June, buoyed again by the electronics cluster, which continued to expand, albeit at a slower rate.
The purchasing managers' index (PMI) - an early indicator of manufacturing activity - posted a reading of 50.9 last month, a marginal increase from May's reading of 50.8.
A reading above 50 points to growth in the sector, while one below 50 indicates contraction.
Although employment in the manufacturing industry fell, the expansionary reading overall was due to improvements in new orders and exports, inventory, and factory output, said the Singapore Institute of Purchasing and Materials Management, which compiles the PMI.
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The employment index recorded a sharper contraction, falling from 49.7 in May to 49.5 in June, a level last seen in November last year.
June's overall PMI reading of 50.9 is also off the high of 51.2 recorded in March, a sign, some said, that the manufacturing rally has peaked and is beginning to moderate.
DBS economist Irvin Seah said: "The electronics sector, which has been the main driver of this rally, is losing steam. Apart from a modest build-up in the stocks of finished goods, most of the sub-indexes have eased off.
"The strong performance in the electronics cluster thus far has been largely driven by consumer demand. To sustain the current pace of expansion, much will really depend on companies increasing their capex (capital expenditure) going forward."
The electronics cluster's PMI posted a reading of 52.1, down from 52.4 in May.
Mr K.K. Goh, executive director of Ka Shin Technologies, which makes precision components for the automotive, aerospace, medical and electronics manufacturers, said he has been getting a strong order flow from the automotive sectors in Thailand and Europe for the past three months, less so from electronics makers. "I think we will still see some positive growth, but not as sudden as the last three months," he said.
Also yesterday, a private gauge of China's manufacturing exceeded estimates in June. The China Caixin manufacturing PMI, which focuses on smaller, private companies, rose to 50.4 from 49.6 in May. This tallied with the official manufacturing PMI released last week that also beat forecasts.
But Mr Seah maintains a tepid outlook for the manufacturing sector in the coming months: "There are signs that suggest demand from China may wane in the coming quarters. Tighter credit conditions, stiffer regulations in the property market and slower growth in general could weigh down on consumer sentiment and companies' willingness to increase their capex, which will indirectly affect Singapore's manufacturing sector."
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