The headline Purchasing Managers’ Index posted 61.7 in January, an increase from December’s 58.7, and indicative of substantial growth of the Taiwan manufacturing sector.
The rise in the headline PMI was supported by a further substantial increase in incoming new business. New order growth was the steepest since October 2007 and extended the current sequence of expanding new business to 10 months.
New export orders also increased substantially, driven by the ongoing recovery in global economic conditions. In particular, exports to the United States, Europe, China and Japan were noted to have improved.
With the rise in overall new order volumes again stronger than the increase in production, backlogs increased further and at their strongest pace in the series history.
Nonetheless, stocks of finished goods also increased during January, ending a 20-month period of decline. Anecdotal evidence suggested that manufacturers accumulated finished goods stocks in anticipation of further rises in new order volumes.
Stocks of purchases also increased during the month. Not only was this due to positive demand forecasts, but also in anticipation of input cost increases. With purchasing activity expanding at the fastest pace since August 2008, suppliers’ delivery times slowed for an eighth successive month.
Also indicative of current pressures on production capacity, and the expectation that these will continue going forward, employment rose for a seventh consecutive month.
Inflationary pressures within the Taiwan manufacturing sector continued to build at the start of 2010. Both input and output price indexes posted further rises since December, with the rates of increase the highest in the respective series histories. Rising raw material prices (particularly for metals and petroleum) drove the increase in input costs. These in turn were partially passed on to clients through a record rise in manufacturers’ charges, although strong competition meant that charge inflation was limited to some extent.
Commenting on the Taiwan Manufacturing PMI survey, Frederic Neumann, senior Asian economist at HSBC, said: “Taiwan's economy continued on the path of robust recovery at the beginning of the year. Virtually all activity indicators pointed to an acceleration of growth since December. The sustained rise in new orders, both domestically as well as from abroad, suggested that the island's economy will register another bumper quarter of economic growth. Encouragingly, firms continued to hire staff at a marked pace, as indicated by the employment subcomponent of the PMI as well as the rapidly falling unemployment rate. Resurging growth, however, is also stoking inflation, with both input and output prices rising vigorously. The central bank may not sit idly by, and we still expect a rate hike before the end of the quarter.”