Singapore factory activity fails to pick up amid tepid regional outlook

SINGAPORE - There was no reprieve for Singapore manufacturers last month as new orders and production continued to shrink.

The Purchasing Managers' Index (PMI) - an early indicator of factory activity - hit 48.9 in October. A reading below 50 implies contraction.

October's PMI - now in its fourth consecutive month of contraction - was dragged down by shrinking domestic and export orders, production output, inventory and employment.

Still, OCBC economist Selena Ling noted that the indices for domestic and export orders rose slightly from September, suggesting a stronger order pipeline.

"That said, the absolute domestic manufacturing and electronics PMI levels are still a far cry from the (numbers) seen a year ago," she added.

The deterioration in the import, input prices, employment and supplier deliveries indices also suggest that the uptick will not last long, said Ms Ling.

The numbers reinforced the recent spate of poor data from the manufacturing sector, which makes up a fifth of the Singapore economy.

Output shrank 6.2 per cent in the July to September quarter compared with the same period a year ago. This came after a 4.8 per cent year-on-year decline in the preceding three months.

Singapore's woes seem more pronounced than elsewhere in the region where manufacturing output is showing signs of stabilising, but economists say tepid global growth continues to weigh on factories.

Tuesday's PMI data, which was compiled by the Singapore Institute of Purchasing and Materials Management from a survey of more than 150 firms, follows a private survey released on Monday (Nov 2) which showed China's factory activity fell for an eighth straight month in October, although at a less severe pace than the previous month.

The preliminary Caixin China manufacturing PMI rose to 48.3 in October, compared with a reading of 47.2 in September, the lowest since March 2009.

The world's No. 2 economy is Singapore's largest trading partner.

Mr Frederic Neumann, the co-head of Asian Economics Research at HSBC, noted that headline PMIs in China, Indonesia, Vietnam, Japan and Taiwan improved last month, but in most cases remained in contractionary territory.

While this might indicate that the region is on firmer ground, it is too early to hope for a sustained bounce, he added.

"One reason to suspect that this is a transitory effect is that manufacturers are still cutting jobs, or slowing hiring, for the most part. That's especially an issue in China, India, and Korea," said Mr Neumann.

"Overall, weaker labour markets raise the risk that consumer spending could slow further in the coming months."