The Nikkei Taiwan Manufacturing Purchasing Managers’ Index (PMI) dropped to 49.7 last month, from 51.1 in March, signifying a slight deterioration in the sector’s operating conditions, as weak client demand weighed on new orders and output.
The privately conducted PMI print suggested recovery remains elusive amid the slow season for technology products.
“After a bumpy first quarter, Taiwan’s manufacturing industry suffered another setback as seen in the PMI data,” said Annabel Fiddes, economist at Markit, which complied the survey.
Taiwanese manufacturers reported renewed declines in output and new orders last month due to tepid demand from both customers in Taiwan and overseas, the monthly report said.
That drove the new order index to fall at the fastest pace since October last year and the output gauge to decline for the second time in three months even though the latest reduction was marginal, the report said.
PMI surveys aim to analyze the health of the nation’s manufacturing industry with scores above 50 indicating expansion and values below the threshold suggesting contraction.
PMI data are important because Taiwan is home to the world’s largest chipmakers, chip designers, laptop and smartphone vendors, and components suppliers.
Input prices rose for the second month running last month, while output prices continued to decline, as companies sought to stay competitive and foster client demand, the report said.
Exactly one in four firms reported higher cost burdens last month, with a number of companies citing higher market prices for raw materials, such as steel and crude oil.
“Companies still lacked pricing power and discounted their charges to attract new business, despite a strongest rise in input costs,” Fiddes said.
The strategy combined with the fastest rise in input costs since the middle of 2014 indicated that a squeeze on operating margins intensified last month, Fiddes said.
The ongoing appreciation of the New Taiwan dollar would rub further salt to the profitability of exporters, whose earnings results are susceptible to foreign-currency exchange movements.
Inventories of finished goods continued to drop, extending the current sequence of reduction to 19 months, the report said.
However, the pace of depletion eased to the marginal rate and the slowest pace so far this year.
Companies attributed lower inventories to conservative stock control policies they introduced to cope with slow business, the report said.
Encouragingly, employment picked up across the sector to a nine-month high and some companies attributed higher staffing levels to new product development, the report said.
“Headcount growth might not be sustained if client demand fails to improve,” Fiddes said.
The official PMI compiled by the Chung-Hua Institution for Economic Research (中華經濟研究院) is due to be released today.
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