South Korea manufacturing sector held steady in July

Markit Research

The HSBC South Korea Purchasing Managers’ Index posted 53.2 in July, a negligible decline from June’s reading of 53.3. The latest figure indicated solid growth within the South Korean manufacturing sector, albeit at the weakest rate in seven months. Nonetheless, July marked the seventeenth successive month where overall business conditions have strengthened.

New order growth slowed marginally in July, as concerns remained over the sustainability of the global economic recovery. This was particularly highlighted in the level of new business received from overseas, which expanded at the weakest pace since December 2009. Nonetheless, overall new order growth was marked, and above the long-run average for the series.

The rise in new business at South Korean manufacturers supported a further expansion in output. The rate of production growth was broadly unchanged since June. Despite this, backlogs of work rose again. However, the accumulation of outstanding business was the slowest in the current seven-month sequence, reflective of weaker new business growth.

Stocks of finished goods decreased during July for a third consecutive month. Anecdotal evidence suggested that manufacturers were aiming to reduce inventories.

July data signaled a marked rise in employment within the South Korean manufacturing sector. Moreover, the pace at which staffing levels increased was faster than that indicated in June. Panelists commented that they were looking to expand production capacity.

Purchasing activity at South Korean manufacturers increased solidly during July. However, in line with lower new order growth, the rate at which input buying rose slowed marginally. Suppliers’ delivery times lengthened again, partly due to capacity constraints at vendors, but also due to shortages of certain materials.

July data signaled another rise in input costs faced by manufacturers in South Korea. The rate of input cost inflation remained marked, and above the long-run average for the series, driven by higher raw material prices and unfavorable exchange rate variations. Subsequently, output prices increased for a seventh successive month.

Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “Korea is hardly stopping for breath. Despite signs of an easing of the global trade cycle, growth momentum going into the third quarter remains robust. Export order growth appears to have slowed somewhat, but remains positive. Even more reassuringly, firms continue to add jobs, signaling confidence in the recovery and boding well for domestic demand over the second half of the year. Strong growth has led to some pick-up in input costs, even as output price pressures remain manageable, suggesting that the central bank may continue to hike rates in the coming months.” 

Subscribe to Machinery Lubrication