Singapore factory activity continues expansion

SINGAPORE — Manufacturing activity expanded for the second consecutive month in June on a further increase in new orders, production output and inventory, suggesting that factories here could get busier in the months ahead following a spluttering first half.

The Purchasing Managers’ Index (PMI) increased 0.2 point to 50.4 last month, remaining above the 50-point mark that separates growth from contraction, the Singapore Institute of Purchasing and Materials Management said today (July 2).

This comes after five months of contraction between December last year and April this year.

“Driving the improvement were a pickup in new orders… In addition, the production, inventory and finished goods sub-indices also rose. This could suggest that brighter days are around the corner for the second half of this year after a dismal first six months,” said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

However, economists cautioned that factory activity for Singapore may not be out of the woods as yet, due to weak purchasing managers’ indices regionally.

“Countries that produce the same kind of products as us – Korea, Japan and Taiwan – have not shown good PMI figures, so we are still cautious on an optimistic performance for Singapore and adopt a wait-and-see approach going forward,” said UOB economist Francis Tan.

“While Singapore’s manufacturing PMI improvement tracked with the pickup in United States’ manufacturing Institute for Supply Management (ISM) data overnight, the rest of the regional manufacturing PMI data were not so upbeat,” added Ms Ling.

Last month’s factory activity was boosted in part by the electronics sector, which rebounded to 50.3 points from 49.8 points in May, after an increase in new orders and production output. However, economists say the underlying indicators show that the improvement could be because of restocking by the manufacturers.

“A bright spot from the PMI figures was the spike in electronics output. However, looking at the sub-indices, it seems that the uptick is perhaps only a modest restocking exercise from the manufacturers themselves as inventory and finished goods indicators are in contraction mode,” said Mr Irvin Seah, senior economist at DBS.