The HSBC manufacturing purchasing managers’ index (PMI) for Taiwan fell below the 50 neutral mark for the second straight month last month, indicating an extended soft patch of manufacturing activity, the British banking group said in a report yesterday.
The PMI reading, a leading indicator of the health of the manufacturing industry, cast a shadow on expectations that external demand would pick up from this quarter to boost the nation’s export-focused economy for the rest of the year.
The nation’s PMI fell to 47.5 last month, from 49.2 in June, staying in the contraction mode for two months running, as companies received less domestic and foreign orders, the report said.
The subindices on new export orders and overall orders — reflecting both domestic and external demand — fell to their lowest levels since December last year at 45.6 and 46.4 respectively last month, from 47.3 and 48.5 in June, the report said.
“The inventory build-up for a number of key electronics product launches that underpinned Taiwan’s manufacturing sector earlier this year is coming to an end, while final demand has yet to pick up in the West or China,” HSBC Greater China economist Donna Kwok (郭浩庄) said.
A PMI value above 50 indicates expansion, while a reading below the threshold suggests contraction.
The output subindex declined for the second straight month to 47.1 last month, from 49.2 a month earlier, the report showed.
Kwok raised an alarm about the fall in the employment subindex, which contracted at its fastest pace in 37 months to 48.5 last month, compared with 50 in June.
“The reading suggests hiring activity is starting to soften, which will likely further dampen consumer sentiment and thereby limit the capacity of domestic demand to make up for lower orders received from overseas,” she added.
That said, Taiwan’s overall job market conditions remained fairly positive with the unemployment rate of 4.2 percent still far below the peak of more than 6 percent in 2009, Kwok said.
The sub-indexes on the input and output prices dropped to 38.1 and 45.6 respectively last month, offering manufacturers some relief in a rapidly deteriorating business environment, the report said.
Against this backdrop, the central bank is likely to keep interest rates unchanged next month because fiscal policy, not rate cuts, is a more effective tool for supporting economic growth, she said.