The official purchasing managers’ index (PMI) dropped to 48.6 last month from 50.8 in June, suggesting a contraction for the local manufacturing industry due to soft demand from markets abroad, the monthly survey by the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) showed yesterday.
The Nikkei Taiwan Manufacturing Purchasing Managers’ Index came to a similar conclusion of operating conditions further deteriorating across the sector.
“The slowdown trend is evident and solid, even though we do not like it,” CIER president Wu Chung-shu (吳中書) told a news conference.
The PMI last month was the lowest since February’s 47.8, ending four consecutive months of increase and bucking expectations of inventory-building into the second half.
A PMI score of less than 50 indicates business contraction, while values above the neutral mark suggest expansion. The Nikkei reading already signaled a fourth consecutive month of deterioration.
The critical subindex on new orders fell to 44.4 percent last month, the lowest since November 2012, as firms in the electronics and food production sectors reported business increases, while all others saw shrinking orders, the CIER report said.
Likewise, the new export subindex retreated to 41.2, with firms in all sectors recording negative cyclical movements, the report said.
Consequently, companies tempered output, pushing down the production subindex to 48.9, the CIER said.
The global slowdown bodes ominously for Taiwan, as exports drive more than 70 percent of its growth, Wu said.
There is little the nation can do to reverse weakening external demand, the academic said, although the government has encouraged local manufacturers to upgrade to cope with growing competition from rivals.
However, the employment subindex gained another 0.9 points to 52.9, the report said, consistent with expectations of business improvement ahead of the high sales season.
The head count increase was at variance with a dim view about business outlooks, the CIER report said.
Companies in all industries expect business to cool in the coming six months, driving the outlook subindex to 42.6, the weakest since December 2012 and 10.5 points lower from June, the report said.
Annabel Fiddes, an economist at Markit Ltd, which compiles the Nikkei figure, said the global economy remains a downside risk given the disappointing start to the third quarter.
Taiwanese manufacturers reported softer demand from clients in China, Europe and the US, Fiddes said.
In a related development, the non-manufacturing index gained 1.6 points to 52.1 last month, suggesting that firms in service sectors fared better than the manufacturing industry, the CIER said in a separate report.
Summer is a high sales season for restaurants and hotels, but traditionally brings slow sales for wholesalers, retailers, real-estate developers and property brokers, it said.
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