Factory activity expands for third straight month

Electronics sector continues to grow; analysts say data signals rosier outlook

The electronics sector saw growth for the second consecutive month, up 0.3 point from August to reach 50.9, the highest since the 51.4 posted in September 2018. But the overall employment index logged contractions for eight consecutive months, despit
The electronics sector saw growth for the second consecutive month, up 0.3 point from August to reach 50.9, the highest since the 51.4 posted in September 2018. But the overall employment index logged contractions for eight consecutive months, despite an improvement in the reading. LIANHE ZAOBAO FILE PHOTO

Manufacturing grew at a faster pace last month in the third straight month of expansion, heralding better days for the economy, said experts.

The Singapore Purchasing Managers' Index (PMI) - a key measure of activity - edged up 0.2 point last month from August to hit 50.3.

A reading above 50 indicates expansion; one below 50 points to contraction.

The electronics sector posted growth for the second consecutive month, up 0.3 point from August to reach 50.9, the highest since the 51.4 recorded in September 2018.

Last month's manufacturing growth was credited to higher new orders and faster rates of growth in exports, said the Singapore Institute of Purchasing and Materials Management (SIPMM), which publishes the monthly PMI readings.

However, it noted yesterday that the inventory index recorded a slower rate of growth.

The overall employment index was also less promising, having now logged contractions for eight consecutive months, despite an improvement in the reading.

But the indices of finished goods, input prices and order backlog posted faster rates of expansion while imports registered a slower pace of increase.

Ms Sophia Poh, SIPMM's vice-president for industry engagement and development, said: "Despite continuous weak employment readings, manufacturers are becoming more optimistic and in anticipation of the next reopening phase for all businesses."

United Overseas Bank economist Barnabas Gan said: "Overall, the data continues to suggest a relatively rosier economic backdrop, compared with the first half of 2020.

"The expansions in manufacturing and electronic PMIs signal that a recovery is taking place, while recent high-frequency data points towards a relatively better economic environment in the second half."

He added that coupled with the growth momentum in non-oil domestic exports, the trough in the country's economic performance was likely in the second quarter.

Gross domestic product is now being pencilled in to contract by a smaller margin of 5 per cent for the year - far better than the 13.2 per cent year-on-year contraction in the second quarter.

But he noted that the employment index suggests that the labour market will continue to stay weak in the months ahead.

This could be especially acute given the Jobs Support Scheme, which helps firms offset a portion of their employees' wages, will be tapered from the fourth quarter.

OCBC Bank's head of treasury research and strategy Selena Ling warned that global issues could hinder recovery. "While manufacturers are becoming more upbeat in anticipation of the Phase 3 opening, it may be too early to break out the champagne, especially since the upcoming American (presidential) election may pose an event risk and US-China tensions persist," she said.

She noted that while the uptick in orders, exports and output gauges for the electronics sector bodes well for the coming months, the traditional rush of Christmas orders is likely to be more subdued due to the weak global economy amid the pandemic.

"Inventory, input price and order backlog gauges are also slightly softer, suggesting that the recovery process may not be smooth sailing either," she said.

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A version of this article appeared in the print edition of The Straits Times on October 03, 2020, with the headline Factory activity expands for third straight month. Subscribe