Tue, Feb 01, 2011 - Page 12 News List

Outside demand fuels purchases by businesses

BUYING AGAIN:Purchases by manufacturers went up for a third straight month last month, which ‘bodes well’ for the recovery of the nation’s labor market

By Crystal Hsu  /  Staff Reporter

Taiwan’s Purchasing Managers Index (PMI) accelerated to a nine-month high of 59.8 last month, fueled by growing demand from China and the West, according to an HSBC PLC report released yesterday.

The latest composite indicator, which rose for the third straight month, suggested a strengthening manufacturing sector, the report said.

‘BACK IN BUSINESS’

“Taiwan’s customers are back in business,” said Donna Kwok (郭浩庄), an economist at HSBC in Asia. “As a high-beta economy hugely exposed to the global trade cycle, its manufacturers and workers are reaping the fruits of stabilizing Western demand.”

A PMI reading above 50 indicates expansion, while readings below the threshold suggest contraction.

The new orders sub-index rose to 62.8 last month from 56.2 in December, with analysts attributing the pickup to an improvement in customer demand, particularly from Europe and China, the report said.

The sub-index on new export orders also posted marked improvement, climbing to 63.3 last month, from 55.7 in the preceding month, the report said.

The strength of external demand continued to translate into higher headcount numbers, pushing the employment sub-index to a 10-month high of 55.1 last month, from December’s 53.0, the report said.

“This bodes well for the recovery of Taiwan’s labor market, which is needed to support household confidence and ultimately private consumption,” Kwok said.

FRAGILE

However, the economist said the recovery of private consumption remained fragile because wage growth had yet to catch up with the recent improvements seen in the pace of job creation.

Input costs jumped to a record-high 84.8 versus 80.8 in December on the back of higher raw material costs, while currency movements of the yen were no longer mentioned, the report indicated. Japan is a major source of Taiwanese imports.

INFLATION

The output prices sub-index edged up to 56.0 last month, from 54.5 the previous month, suggesting manufacturers opted to absorb input cost increases because of tough competition, thereby keeping inflationary pressure constrained, the report said.

If domestic demand displays more meaningful signs of a recovery, the upside risk for inflation may start to accelerate in line with the rest of Asia, Kwok said.

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