Manufacturing sector continued output and new orders downtrend in July: Nikkei Index

PETALING JAYA: Malaysia's manufacturing sector continued to under-perform in July, registering further contractions in both output and new orders amid reports of weak market activity and demand.
The headline Nikkei Malaysia Manufacturing Purchasing Managers' Index (PMI) – a composite single-figure indicator of manufacturing performance – rose to 48.3 in July, indicating a slower rate of decline in the manufacturing sector compared to June's 46.9.
Persistent weaknesses in several key indices meant that the deterioration of operating conditions in July was worse than the average for the first half of 2017.
Manufacturing production declined for a third successive month during July. The degree to which output fell was weaker than in June, but nonetheless still marked.
However, manufacturers added to their workforce, partly in anticipation of an increase in production over the coming year. Confidence regarding future output remained inside positive territory during July.
Meanwhile, on the price front, average input costs rose at a marked, but again slower rate during the month. This in part led to a weaker increase in output prices, with the pace of inflation the slowest recorded by the survey in 2017 so far.
Falling levels of new orders, linked to underwhelming market demand, was the primary factor behind the deterioration in sales. Weakness in the domestic market was a key reason for reduced overall new orders: foreign sales were broadly unchanged in July.
July's survey indicated little pressure on capacity. Backlogs of work declined for the third time in the past four months, with the rate of contraction the greatest recorded by the survey since data were first collected over five years ago.
The weak trend in new orders was widely reported to have enabled firms to reduce their unfinished work, and was also cited as a reason for why purchasing activity was reduced for a third month running. Poor near-term prospects led to reductions in stocks of both purchases and finished goods.
That said, longer-term expectations were seen as more positive, with respondents on average anticipating a rise in production over the coming 12 months. Expected growth underpinned a slight increase in employment, the second time in the past three surveys that a rise in workforce numbers has been recorded.
Input price inflation continued its recent descent from February's survey high during July, falling for a fifth successive month to the lowest recorded by the survey since last October. That said, price pressures remain marked, with a weak exchange rate and rising raw material prices noted. Strong global demand for inputs was reported, reflected by a further lengthening of delivery times over the month.
Matching input price inflation, the latest data showed a similar trend in output prices. July's survey indicated that average charges rose modestly and at the weakest rate of the year so far.
Commenting on the Malaysian Manufacturing PMI survey data, Paul Smith, director at IHS Markit, which compiles the survey, said the Malaysian manufacturing sector continued to struggle in the face of tepid demand, particularly from within the domestic economy, during July. Output, purchasing activity and inventories were all cut as near-term prospects remained bleak.
"However, companies retained some hope of an improvement in operating conditions over the medium-term, expecting growth to occur in the next 12 months. This helped to bolster employment, which subsequently rose marginally for the second time in the past three months."