The HSBC purchasing managers’ index (PMI) for Taiwan contracted for the third straight month to the lowest level this year at 46.1 last month, from 47.5 in July, as the slowdown in manufacturing activity deepened, the British banking group said in a report yesterday.
The deterioration in external conditions has started to spill over and affected domestic demand, HSBC Greater China economist Donna Kwok (郭浩庄) said in the report, pointing to the steeper decline in new orders than in new export orders.
The sub-index on overall new orders — indicative of both domestic and external demand — dropped by 2.8 points to 44.4 last month, from 47.2 in July, the report said.
The sub-index on new export orders declined by 1.2 points to 43.6 from 44.8, the report showed.
Both indices have contracted for a quarter now to their lowest value since December last year, consistent with the eurozone’s worsening contraction and China’s sluggish recovery, Kwok said.
The PMI reading is a leading indicator of the manufacturing industry’s health, with a reading above 50 indicating expansion and a score lower than the threshold suggesting contraction.
Stocks of finished goods and purchases remained in negative territory at 48.2 and 47.8 respectively last month, although both edged up from 46.9 and 47 one month earlier, suggesting that destocking pressure is not yet at play, Kwok said.
However, inventory readings will start to climb again in a few months, if final demand does not recover before long, either at home or overseas, she said.
The sub-index on employment, a gauge that has a critical bearing on consumer confidence and domestic demand, deteriorated from a month earlier to 49.4 last month, though the pace of contraction moderated from 48.5 in July, the report said.
Figures released by the Council of Labor Affairs showed that as of the end of last month, the number of workers on unpaid leave increased by 58 from Aug. 15 to 650 after three more companies adopted the measure to cope with shrinking business.
“As manufacturers account for a sizable 27 percent of jobs in Taiwan, softening employment puts domestic consumption in a more vulnerable state than during the technical recession in second half of last year,” Kwok said.
The sub-index on input prices declined to 46 last month, from 38.1 in July, on the back of weak demand and falling metal and raw material prices, the report said.
A tough competitive environment saw firms cut final output prices for the fifth straight month, keeping the output price sub-index below 50 at 46.1 last month, from 45.6 in July, the report said.
HSBC expects input prices to trend up before the year is over, as rising global energy prices start to filter through, the report said.
Firms will hesitate to pass on higher input cost burdens to customers due to sharp competition, helping to keep the overall inflation modest and allowing the central bank to hold interest rates steady later this month, Kwok said.