The HSBC South Korea Purchasing Managers’ Index posted 55.6 in March, down from February’s 26-month high of 58.2. Nonetheless, the latest figure signaled a marked strengthening of business conditions within the South Korean manufacturing sector, and was above 50.0 for the 13th successive month.
Supporting the sustained improvement in business conditions was a further marked increased in new business received. However, the rate of new order growth eased solidly since February, indicating that the recovery of the global economy remained tentative.
Similarly, new orders received from export markets rose markedly, but at a weaker pace than the 26-month high posted in February.
The overall rise in new orders boosted output for a 13th successive month. Reflective of the slower pace of new business growth, production expanded at a weaker rate. However, backlogs at South Korean manufacturers rose further, indicating that pressures on production capacity remained. Highlighting this, finished goods stocks were depleted at the fastest pace in 21 months, as manufacturers utilized inventories to partially fulfill order requirements.
Employment in the South Korean manufacturing industry increased at the second-strongest rate since October 2006 in March. Companies aimed to expand production capacity in light of higher current and future expected new orders.
The expansion in production also supported another rise in purchasing activity. Growth in input volumes also reflected some panelists aiming to rebuild stocks ahead of further expected rises in input costs. Reflecting the large increase in purchasing activity, suppliers’ delivery times lengthened for a third consecutive month.
Rising raw material prices and unfavorable exchange rate variations drove a further increase in input costs during the month. Manufacturers partially passed increased costs on through higher charges, although the extent of the rise in output prices was limited by strong competition.
Commenting on the South Korea Manufacturing PMI survey, Frederic Neumann, co-head of Asian economic research at HSBC, said: “After a strong start to the year, South Korea is taking a little breather. Output growth appears to have eased in March, while stabilizing new order expansion suggests that the economy will settle into a comfortable growth path over the coming months. Reassuringly, employment growth remains robust, if marginally lower than during the previous month. This should support domestic consumption, which remains in solid expansion. Output price pressures, meanwhile, appear relatively contained, providing some room for the central bank to stick to its accommodative stance.”